Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — TRANSPORT

Heavy Lorries (Direction Indicators)

Mr. Russell: asked the Minister of Transport and Civil Aviation if he is aware that many large lorries and vans still have no direction indicators, or have types which cannot be seen by following vehicles unless their drivers pull out into the centre of the road; and what steps he proposes to take to persuade the owners of large lorries to remedy this defect.

The Joint Parliamentary Secretary to the Ministry of Transport and Civil Aviation (Mr. G. R. H. Nugent): There are serious difficulties in designing completely satisfactory direction indicators for heavy lorries. We have, however, made proposals to the industry for improving the visibility of direction indicators where fitted, and we intend to make regulations on these lines to apply early next year.

Mr. Russell: As it is possible to fit direction indicators to some heavy lorries, is not it possible to fit them to all, certainly as far as the back is concerned?

Mr. Nugent: We do not intend to make it obligatory to fit traffic indicators to old vehicles at the present time. Our intention is to make it obligatory that where traffic indicators are fitted to vehicles they shall conform to a certain standard.

Car Delivery Vehicles

Miss Burton: asked the Minister of Transport and Civil Aviation if he will make a further statement on the evidence supplied to him on 30th April last concerning alleged irregularities of Section 19 of the Road Traffic Act, 1930, by operators of road transporter vehicles

engaged on the transporting of cars from various Coventry car factories to different parts of the country.

The Minister of Transport and Civil Aviation (Mr. Harold Watkinson): These inquiries are bound to take time and I regret I cannot add anything at present to the reply I gave to the hon. Lady on 21st May.

Miss Burton: While believing that the Minister does wish to make progress here, would not he agree that the letter from the district secretary of the Transport and General Workers' Union in Coventry really gave dates and times and full details? Does the right hon. Gentleman know when we can expect a reply?

Mr. Watkinson: The difficulty with the letter which I have here is, of course, that the whole problem is that of getting people to submit real evidence. We are doing our best.

Mr. Ernest Davies: Is not also the difficulty that the right hon. Gentleman has not enough enforcement officers and appears to rely on evidence given by Members of Parliament and by the unions, which is not altogether satisfactory?

Mr. Watkinson: I am answering a Question about that later on.

Miss Burton: asked the Minister of Transport and Civil Aviation whether he is now in a position to announce his decision concerning the removal of the anomaly whereby the operation of car delivery vehicles is made possible under general trade licences when carriers' A or B licences are not required.

Mr. Watkinson: My right hon. Friend the Chancellor of the Exchequer proposes to table a Clause during the Committee stage of the Finance Bill, the effect of which will be to remove this anomaly.

Miss Burton: Is the right hon. Gentleman aware that it is very nice to be able to say "Thank you", and that we in Coventry are very appreciative of this anomaly being removed?

Three-wheeler Motor Car (Taxation)

Mr. Dodds: asked the Minister of Transport and Civil Aviation why Mr. A. Richards, 52, Parkside Avenue, Barnehurst, has on two occasions been asked


to take his three-wheeler motor car all the way to Maidstone to be weighed for taxation purposes when there is a public weighbridge within a mile of his home; and, in view of the loss of work and expense in which he has been involved, if Mr. Richards may now be reassured that the dispute has been resolved and that he will be required to pay £5 per annum tax instead of the £12 10s. asked from him.

Mr. Nugent: As my right hon. Friend has explained in a letter to the hon. Member, Mr. Richards was invited to bring his vehicle to Maidstone because he disputed the weight as registered at the local weighbridge. The weight of this vehicle, after various adjustments were made, has now been finally determined as below 8 cwt. and Mr. Richards is therefore entitled to the £5 rate.

Mr. Dodds: But can the Minister explain why it has been necessary to wait thirteen months before the official weight can be established? Is not he aware how difficult it is to clean all the dirt off after thirteen months and how much dirt can be picked up on the long journey from Barnehurst to Maidstone in wet weather? Is he aware that, even after all that, it was only 4 lb. over and that, for the 4 lb., Mr. Richards was asked to pay £7 10s., but that when he got back home he took off 5 lb. of mud which, at that rate, worked out at 30s. a lb.? Cannot something be done to help people to enjoy the pleasure of a motor car and will the Minister not make it a nightmare with these cat-and-mouse tactics?

Mr. Nugent: I think that the hon. Gentleman is giving a slightly unfair impression. The procedure is that the vehicle is registered as under 8 cwt. on application. It may be six to twelve months later that it is called in to have its weight physically checked. It was then found, on 8th February, to be overweight—

Mr. Dodds: Four lb.

Mr. Nugent: No, 40 lb.; he had, therefore, collected nearly half a cwt. of mud underneath. After a certain amount of reweighing and adjustment, he was finally able to make the right weight. The fact is that this was very near the borderline.

Mr. Dodds: On a point of order, Mr. Speaker. Owing to the fact that the

Minister has given the wrong weight, I beg to give notice that I will raise the matter at the earliest opportunity on the Adjournment.

Trains and Aircraft (Telephones and Wireless)

Mr. Teeling: asked the Minister of Transport and Civil Aviation whether he will give general directions both to the British Transport Commission and to British Overseas Airways Corporation and British European Airways that they make it possible, as in the United States of America, to telephone from trains and aircraft and to install wireless so that news and other matters of interest can be listened to.

The Joint Parliamentary Secretary to the Ministry of Transport and Civil Aviation (Mr. Airey Neave): No, Sir. This is a matter for the undertakings themselves, who have already investigated it thoroughly. The general conclusion is that the provision of these facilities would be too costly; on some air routes there are, in addition, technical and language difficulties.

Mr. Teeling: Does not my hon. Friend feel that it is a national matter too? From the point of view of people coming to this country, is not it important that they should have the same facilities as they have in the United States? As regards the train facilities, is not it true that this was tried out before the war, and that one of the reasons it is not being done has something to do with tunnels, because it is necessary to have some outside equipment? On the air side, is not my hon. Friend aware that when people are in difficulties, as I myself have been in coming back and trying to get to places at a certain time, they are informed that only members of the Government are allowed to send down messages of an urgent character?

Mr. Neave: I have no information on the latter part of that supplementary question, and I have no experience of it at the moment. I am sure that it is only in very grave emergencies that any such messages can be sent from an aircraft. My hon. Friend's suggestion is an interesting one, but to make such a scheme pay either on a train or on an aircraft would be prohibitive because of the cost per call. My hon. Friend mentioned the American railroads. Some experiments


have been made with the installation of telephomes, radios and such "gimmicks" in trains to attract passenger traffic, but they have not, so far, proved successful.

Bowes Committee (Report)

Mr. Grant-Ferris: asked the Minister of Transport and Civil Aviation whether he has considered the report of the Bowes Committee; and when he proposes to publish it.

Mr. Watkinson: I am considering the findings of the Report which was presented to me last Thursday. It has now gone to the printers and should be ready for publication before the end of July.

Mr. Grant-Ferris: While thanking my right hon. Friend for that Answer, may I ask, as I asked him before, whether it is intended to publish the evidence, which, considering that the Committee sat for 2½ years, will be voluminous but which will be most helpful? Also, will he convey the thanks of the House to these gentlemen, who are not personally interested in this matter, for the long work they have had to do on it, although he cannot express an opinion about what they have done?

Mr. Watkinson: I agree that it has been an immense task, but I could not undertake to publish the evidence. It is of such a voluminous nature that it would not be possible. The Report goes into great detail and it will be welcomed by the House.

Mr. Strauss: Can the Minister confirm what the Joint Parliamentary Secretary said some time ago, namely, that the Government's decisions and policy on the matters dealt with in the Report will be published at the same time as the Report itself?

Mr. Watkinson: I do not think my Parliamentary Secretary gave such an undertaking. I think that it would be much wiser to publish the Report and take the sense of the House and other interested parties upon it.

Mr. Strauss: Will the Minister be good enough to look at the statement which was made? If it has been altered, I think it is a pity. Cannot the Minister give an undertaking that the Government's policy will not be long delayed and will be published as soon as possible after the Report, because it is a long time since this matter was first raised?

Mr. Watkinson: I will certainly give that undertaking. However, it would be wiser to publish the Report and let the House see it before the Government pronounce upon it.

Drivers (Working Hours and Records)

Mr. Ernest Davies: asked the Minister of Transport and Civil Aviation if he is aware of the large increase, reported in the Summary of the Annual Reports of the Licensing Authorities for the year ended 30th September, 1956, in offences committed under the Road Traffic Acts in regard to working hours and keeping of records; and what steps he proposes to take to ensure stricter observance and enforcement of these statutory requirements.

Mr. Nugent: We are recruiting additional examiners for these enforcement duties.

Mr. Davies: The Parliamentary Secretary has not answered my Question. I asked whether he was aware of the large increase in the number of offences about which he has previously been so complacent. Is he aware that in the Report referred to in the Question, it is stated that there has been an increase of 90 per cent. in the number of offences relating to excessive hours of working and a 70 per cent. increase in the number of offences concerning the keeping of accurate records? Will the hon. Gentleman now admit that it is because of the excessive competition on the roads that the law is not being observed?

Mr. Nugent: Of course, there are some breaches of this law. There are over 1¼ million of these new vehicles on the roads; 3,300 of the offences are under Section 19 and 5,800 are under Section 16, and those figures are not excessively large in view of the large number of vehicles on the roads. We intend to recruit extra numbers when we can get them.

Mr. Davies: By how many does the hon. Gentleman propose to increase the enforcement officers' staff? In the statement that he made previously the number given was five—that is, from 100 to 105. One hundred is the same number as were available before the war when there were one-third the number of vehicles now on the roads.

Mr. Nugent: We also have permission to draw 52 from the driving test examiners' staff. In order to find sufficient scope from that number we have now authority to raise the establishment by 40. We have, therefore, a good prospect this autumn of increasing the numbers engaged on this work.

Traffic, Central London

Mr. Osborne: asked the Minister of Transport and Civil Aviation, in view of the overcrowding of the Central London streets even during the absence of buses, what steps he proposes to take, either to reduce drastically the number of buses that will be permitted to run or to restrict private cars in order that some movement of traffic may be possible at peak hours; and if he will make a statement.

Mr. Watkinson: The mean journey and running speeds of traffic in Central London have not altered significantly during the bus strike, although the number of vehicles has increased and the pattern of movement varied. I remain of opinion that any attempt to exercise direct control over the number of private cars entering Central London would be impracticable and undesirable. As regards buses, the Chairman of the London Transport Executive has already said that there will have to be a considerable reduction in mileage in the London Transport Area when work is resumed.

Mr. Osborne: Does "considerable" mean more than half? If my right hon. Friend goes down Piccadilly from the West End to this House he will find at present that private cars so choke the roads at peak hours that it would be impossible to fit in many buses? Does he think that more than half the number of buses could return?

Mr. Watkinson: All these things are a matter of opinion, like the statement which has been made to me that 2½ private cars equal one bus.

Oral Answers to Questions — RAILWAYS

Stations (Taxi-Cab Ranks)

Mr. Brockway: asked the Minister of Transport and Civil Aviation what invitations were addressed by the Transport Users' Consultative Committees to

railway passenger associations, the Transport and General Workers' Union, the National Taxi-cab Owners' Association, local taxi-drivers' associations, local authorities and members of the Home Office Working Party on Hackney Carriages when inquiring into the use of privileged station ranks by licensed taxi-drivers.

Mr. Watkinson: The object of my reference to the consultative committees was to obtain their views as the statutory bodies representative of the travelling public. The committees are free to decide what evidence from other organisations they need for their task, and if the hon. Member will await their report he will be able to see how extensive and thorough their inquiries have been.

Mr. Brockway: May I ask the right hon. Gentleman if he is aware that a number of these consultative committees have not issued any invitations to the taxi-cab drivers concerned to give evidence upon this matter? In the case of Slough, for instance, which was the first area where the matter arose before it became a nation-wide issue, there has not been a single communication with the taxi-drivers' association. Does the right hon. Gentleman expect there to be confidence in any recommendations made under these circumstances?

Mr. Watkinson: Yes, certainly. It is not for me to tell the consultative committees how to do their job.

Miss Bacon: Is the Minister aware that I have had a communication from a taxi-cab association in Leeds, which represents more than half of the taxi-cab drivers of Leeds, alleging that while they, who are not allowed on the station, were not consulted by this committee, the other organisation, which is allowed on the station, was invited to put forward its views?

Mr. Watkinson: I am sure that if the hon. Lady thought that the views should be put forward she would advise the organisation to do so, and that, if they were, they would be considered.

Transport Users' Consultative Committees (Members)

Mr. Brockway: asked the Minister of Transport and Civil Aviation if he will publish in the OFFICIAL REPORT the


names of the members of the Transport Users' Consultative Committees for England, Scotland, and Wales, and particulars of any association they may have with organisations representing the travelling public.

Mr. Nugent: Yes, Sir.

Mr. Brockway: May I ask the Parliamentary Secretary whether he will use his influence with his right hon. Friend to make these committees more representative, more dynamic and more effective? Is he aware that there is not

CENTRAL TRANSPORT CONSULTATIVE COMMITTEE FOR GREAT BRITAIN


Chairman: Sir Ronald Thornbury Garrett,
Secretary: Mr. J. C. Chambers,


Bury St. Edmunds,
22, Palace Chambers,


Suffolk.
Bridge Street, Westminster, S.W.1.



Tel.: WHI 6434


Interests Represented and Bodies Consulted, as required by Section 6 (4), Transport Act, 1947
Members


Agriculture
National Farmers' Union
Mr. J. L. Brighton, Newton Flotman, Norwich.



National Farmers' Union of Scotland.
Mr. D. Goodfellow, Arbroath, Angus.


Industry.
National Union of Manufacturers.
Mr. C. S. Garland, A.R.C.S., B.Sc, F.R.I.C., M.I.Ch.E., London.



Federation of British Industries
Mr. E. G. Whitaker, M.Inst.T.



National Coal Board.
Mr. R. H. E. Thomas, O.B.E., N.C.B., London.


Commerce
Association of British Chambers of Commerce.
Mr. D. H. Joyce, London.



Parliamentary Committee Co-operative Union, Ltd.
Mr. S. C. Rowell, M.Inst.T., Manchester.


Shipping
General Council of British Shipping.
Mr. I. Hooper, London.


Labour
Trades Union Congress
Mr. H. Collison, London.




Mr. G. H. Lowthian, M.B.E., London.


Local Authorities
County Councils' Association
Major J. R. H. Harley, D.L., J.P., Bucknell, Salop.




Major C. E. Pym, C.B.E., D.L., J.P., Wester-ham, Kent.



Association of Municipal Corporations.
Councillor Major W. H. Powell, D S.O., J.P., Southsea, Hants.




Alderman Sir James P. Collins, Fairwater, Cardiff.



Scottish Local Authorities (including Association of County Councils in Scotland).
Councillor J. Bennett, J.P., Glasgow.


British Transport
—
Rt. Hon. Lord Rusholme, B.T.C., London




Mr. M. A. Cameron, B.T.C. London.




Additional Members:




Sir John Banks, C.B.E., J.P., Portobello, Midlothian (Chairman, Scottish Committee).




Mr. R. G. M. Street, Cardiff (Chairman, Welsh Committee).

one in a thousand railway passengers who has any knowledge of these committees and that these committees are supposed to represent their interests?

Mr. Nugent: The representation on these committees conforms, of course, exactly with the terms of the 1947 Act. I think that when the hon. Gentleman gets the long schedule of those who are on these committees he will see that they are very fully representative of the general railway users.

Following are the particulars:

TRANSPORT USERS' CONSULTATIVE COMMITTEE FOR SCOTLAND


Chairman: Sir John Banks, C.B.E., J.P.,
Secretary: Mr. J. Reid,


Portobello,
23, Waterloo Place


Midlothian.
Edinburgh.


Tel. CENtral 2477, Ext. 202.


Interests Represented and Bodies Consulted, as required by Section 6 (4), Transport Act, 1947
Members


Agriculture
National Farmers' Union of Scotland.
Mr. A. C. Barr (Argyll).




Mr. J. Marshall (Dunning, Perthshire).


Industry and Commerce.
Scottish Council (Development and Industry).
Mr. A. V. McLeod (Edinburgh).


Mr. W. MacKenzie (Inverness).



Council of Scottish Chambers of Commerce.
Mr. W. J. Mason (Glasgow).



Mr. J. F. Carnegie (Glasgow).



National Coal Board
Mr. H. Adamson (Edinburgh).



Parliamentary Committee Co-operative Union, Ltd.
Mr. J. Aitchison (Glasgow).


Shipping
General Council of British Shipping.
Mr. J. Urquhart (Glasgow).


Labour
Scottish Trades Union Congress
Mr. T. B. Meikle, O.B.E. (Glasgow). One vacancy.


Local Authorities
Counties of Cities Association.
Councillor J. Chalmers Brown, M.C. (Edinburgh).




Councillor P. N. Doig (Dundee).



Association of County Councils in Scotland.
Mr. F. W. Walker (Inverness).



Rev. P. Craik MacQuoid (Aberdeenshire).



Convention of Royal Burghs
Provost D. Cairns, J.P. (Kilmarnock).




Provost G. Fraser, J.P. (Hawick).


British Transport Commission.
—
Captain Sir Ian Bolton. Bt., O.B.E. (Glasgow).




Mr. J. P. Young (Glasgow).




Mr. J. Ness (Glasgow).




Mr. J. Amos. O.B.E. (Edinburgh).




Additional Members:




Mrs. M. J. MacDonald (Stonehaven).




Miss A. McKenzie (Aberdeenshire).

Economies

Mr. L. Thomas: asked the Minister of Transport and Civil Aviation if he will now make a further statement on the economies being effected by the British Transport Commission in the light of the railway wages settlement.

Mr. Watkinson: The principal economies being made are:
Reduction of train mileage: The first cuts, which will be announced within the next 48 hours, represent about 9 per cent. of present passenger train mileage on the Western Region. Other Regions will follow.
Reduction of overtime or weekend working: This has been eliminated in a number of railway workshops.
Reduction in repairs and maintenance expenditure: The scrapping of 100,000 freight wagons is to be completed by the end of the year. The rate of withdrawal is now 4,000 wagons a week.
Restriction of recruitment: At this time of the year recruitment normally rises. This year it is being severely reduced and normal wastage is not being fully replaced.
Elimination of unremunerative services: The Chairman of the Commission and I have each had talks with the

Chairman of the Central Transport Consultative Committee. Over 30 branch line services have been earmarked for withdrawal and will be submitted to the Transport Users' Consultative Committees within the next few months, in addition to the proposal to close the old Midland and Great Northern line, recently announced.

Mr. Thomas: While thanking my right hon. Friend for that very full reply, may I ask him if he is satisfied that the fullest consultation is taking place between the British Transport Commission and the trade unions involved in the railway world? Secondly, can he say when this decision will be implemented in a form which will inform the travelling public exactly how and when they will be affected?

Mr. Watkinson: The first point which my hon. Friend has raised is a most important one, and I have been assured by the Chairman of the Commission, and I know that it is true, that every possible consultation is being held with the trade unions so that they are fully informed and can play their full part in these necessary closures. As to the second part of my hon. Friend's supplementary question, as I have said, announcements of the actual cuts, changes


in train time-tables and the like will start to be made within the next 48 hours.

Mr. Strauss: May I ask the Minister two Questions? Can he tell us how much these economies will amount to, above the amount which would naturally have been put into operation as a result of the general review of its affairs by the Transport Commission; and, secondly, while everyone agrees that it is perfectly easy to cut down expenditure in any organisation, can he assure us that the public service of the railways is not being seriously damaged by the cuts he has told us about today?

Mr. Watkinson: As to the first part of the right hon. Gentleman's supplementary question, that was made plain when I answered previous Questions on this matter. It is that the extra cost of wages settlements has to be recovered by economies, and they were all set out quite clearly in the previous Answer which I gave. As to the second part of the supplementary question, which is a very important one, this is not an attempt just to slash the railway services quite regardless of the general modernisation plan and the future of the railways. It is carefully dovetailed into that plan, and we are trying to make the railways fit the present day, when there are 7 million road vehicles available. That, therefore, necessitates great changes from previous days, when there were no road vehicles at all.

Sir I. Fraser: May I ask my right hon. Friend if, while obviously in some cases the local interest must give way to the national interest in this matter, he and the authority concerned will bear in mind that the local people will take such a drastic thing as the closure of a local line much more readily if two criteria are borne in mind; namely, first, that real economy is effected by the closure, and, secondly, that there is adequate alternative transport?

Mr. Watkinson: Both these things have to be considered by the Transport Users' Consultative Committee, but I say again that I hope that hon. Members of this House will, as far as they properly can, help in this necessary work of making the railways modern and efficient.

Express Trains (Time Schedules)

Mr. Snow: asked the Minister of Transport and Civil Aviation, in view of the fact that in the four weeks ended 22nd February only 39·7 per cent. of British Railways expresses arrived on time and only 66·1 per cent. within five minutes of booked time, and that both these percentages in any event are lower than for the same period last year, if he will give a general direction to the British Transport Commission to institute a general revision of all schedules in the light of existing traffic conditions.

Mr. Watkinson: No, Sir. This is a matter for the British Transport Commission, which is already giving it special attention. The introduction of diesel and electric motive power will make it possible to revise and speed up a number of schedules. At the same time, until the many engineering works on modernisation are completed, they are bound to cause occasional delays which regional managements are doing their best to keep to a minimum. The Commission does not consider that these temporary and varying delays can be allowed for by the revision of timetables which are brought out twice a year.

Mr. Snow: Can not the Minister induce the British Transport Commission to publish more frequent and up-to-date records of train time-keeping? Is he aware that it is very difficult indeed, other than by searching through rather obscure railway journals, to find out what is happening? Is the Minister satisfied that the British Transport Commission is not inhibited by a fear that punctuality is rather reminiscent of Mussolini and that there is something discreditable in securing a high level of punctuality—a thing which, I regret to say, is not the experience of many people at the present moment?

Mr. Watkinson: I do not accept that at all. This is part of the price which we have to pay at the moment for modernisation. If one is rebuilding stations, changing the track and modernising, one will occassionally have to accept some delay.

Capital Investment

Mr. Ernest Davies: asked the Minister of Transport and Civil Aviation how


the total investment in the railway programme for the two years 1958 and 1959 compares with the total forecast in the regional budgets produced subsequent to the imposition of the 1957 restriction on capital investment.

Mr. Watkinson: As these budgets are part of the internal administrative arrangements of the British Transport Commission, no details were submitted to me.

Mr. Davies: But is not it unfortunate that the arbitrary cuts in capital expenditure were imposed before the regions had been consulted and it had been ascertained by how much they were able to accelerate their programmes? Has the Minister these figures or can he obtain them from the Commission, to see whether the capital investment programme could be accelerated still further, since it is a matter of great urgency, as is shown by the economies now being made?

Mr. Watkinson: It is rather an old story now. As the hon. Gentleman knows, since all this discussion the railways have been granted another £25 million. This is, I think, extremely generous treatment; they will make good use of the money, and I think that they had better get on with it.

Mr. Davies: Is it a fact that of that £25 million only £15 million is in addition to the original programme intended to be carried out? Can the Minister say whether, if the regional programmes had been added together, they would have come to more or less than the total programme including this additional £15 million?

Mr. Watkinson: I am not concerned with that. What I am concerned with is that, in the recent discussions I had on behalf of the Government with the Transport Commission, the Commission received the amount of capital injection which it felt would most help it to speed up its most profitable services. That amount the Commission had; it has all it asked for on that basis, and I think that that is right, but I do not think there is justification for asking for any more.

Oral Answers to Questions — SHIPPING

South Wales Ports

Mr. G. Thomas: asked the Minister of Transport and Civil Aviation whether he will introduce legislation to establish a South Wales Docks Board charged under the British Transport Commission with especial concern for the administration and development of the South Wales ports.

Mr. Neave: No, Sir. These ports are already administered as one unit and we do not think there is a good case for legislation.

Mr. Thomas: Is the Minister aware that if they are administered as one unit, they are not administered equally and fairly, and that conditions militate against Cardiff docks? Is he also aware that there appears to be no drive by his Department to ensure that at least the same rates shall be charged in Cardiff as in London and the North?

Mr. Neave: I do not accept that a change in administration would make things any better. The position is that the Commissioners are certainly doing their best, and since they were established they have spent a total of £5½ million on improving South Wales ports. It is their policy to maintain them in the highest efficiency. As far as Cardiff is concerned, they have deferred a decision to undertake developments there until they see a greater prospect of an adequate return on the capital.

Mr. Thomas: Is the Minister aware that he is giving the impression that the national dock authority is prepared to wipe out Cardiff as a useful port, and that his last statement will be regarded with dismay by all the people concerned in the Cardiff dock area?

Mr. Neave: No, Sir; I cannot accept that, and I did not say that. I said that the Commissioners had deferred a decision for the reasons I have given.

Mr. Ness Edwards: Will the hon. Gentleman try to explain to the House why it is that the dues at Cardiff docks are much higher than elsewhere, and can he tell us when we are going to have an end to this anomaly?

Mr. Neave: We had a Question on the matter last week, and I am writing to the hon. Member who raised it. If any further details are required, I should like to see a Question on the Order Paper.

Mr. Thomas: In view of the unsatisfactory nature of the reply, I beg to give notice that I will raise the matter on the Motion for the Adjournment at the earliest possible opportunity.

Milford Haven Conservancy Authority (Chairman)

Mr. Donnelly: asked the Minister of Transport and Civil Aviation whether he is yet in a position to make a statement regarding the Milford Haven Conservancy Authority.

Mr. Watkinson: I am glad to inform the House that Lord Dynevor has accepted my invitation to be the first Chairman of the Board. Consultations are in progress about the other appointments to the Board.

Mr. Donnelly: Is the right hon. Gentleman aware that, because of the importance of this Authority in my constituency, we hope that Lord Dynevor will have a successful term of office? May I ask him for an assurance that the present difficulties that have arisen between the Crown Estates Commissioners and the proposed developers will in no circumstances be allowed to impede the development of Milford Haven?

Mr. Watkinson: On the first part of that supplementary question, I am very grateful to Lord Dynevor, and I think that the hon. Member and the whole House will wish him well in starting this great new port authority. As to the second part of the supplementary question, I am very hopeful now that a satisfactory arrangement will be reached over this very difficult question which will be quite satisfactory to the petrol companies and will allow the work to go forward.

Radio Officers

Mr. J. Howard: asked the Minister of Transport and Civil Aviation whether the shortage of radio officers is restricted to the marine radio companies; and if he will make a statement.

Mr. Neave: As the marine radio companies provide the great majority of radio officers, they have, naturally, borne the brunt of the shortage. I understand that the position has slightly eased since the statement which I made on 14th May in answer to a previous Question by my hon. Friend.

Mr. Howard: I thank my hon. Friend for his reply, but may I again ask him to draw to the attention of the marine radio companies the circumstances of a constituent of mine, who qualified in Southampton as a radio operator but who has been unable to find employment, presumably because he is coloured?

Mr. Neave: As my hon. Friend knows, I am doing my best about that case.

Oral Answers to Questions — ROADS

Newcastle-under-Lyme

Mr. Swingler: asked the Minister of Transport and Civil Aviation if he is now in a position to approve the scheme to widen Friar Street in Newcastle-under-Lyme.

Mr. Nugent: The borough council has already been informed that if it submits an application for a grant in the current financial year we are prepared to consider it favourably.

Mr. Swingler: Is the Joint Parliamentary Secretary aware that that small improvement will give some small satisfaction to the people of Newcastle-under-Lyme, for which we are grateful?

Mr. Swingler: asked the Minister of Transport and Civil Aviation if he will give Newcastle-under-Lyme Council authority to take all necessary steps to prepare for the trunk road improvement scheme from London Road to Milehouse Lane.

Mr. Nugent: This is under consideration and we hope to take a decision shortly.

Mr. Swingler: Is the hon. Gentleman aware that nothing will satisfy the council and people of Newcastle-under-Lyme until approval has been given for the carrying out of this important trunk road improvement, which is becoming more and more urgent every day? Is he also aware that if he could give the council


authority to acquire the small parcel of land that has not yet been acquired, in order to make ready the plans for the improvement, he would be in a better position to give his approval?

Mr. Nugent: The hon. Member's assiduity in asking questions on this matter leaves us in no doubt of its importance. We are at present considering it, after the delegation called on us to tell us about it in detail, and I hope that my right hon. Friend will be able to give a decision very shortly.

Invalid Carriages (Parking)

Mr. Willey: asked the Minister of Transport and Civil Aviation whether he will take steps to ensure that at all metered parking places provision shall be made for the parking of invalid carriages without charge.

Mr. Nugent: The Westminster Parking Places Order, which is the only one so far made, provides that on obtaining written permission from the Council drivers suffering from severe physical disability may leave their vehicles at parking meters without charge. We shall be prepared to give favourable consideration to similar provisions in any future scheme which may be submitted to us.

Mr. Willey: Will not the Joint Parliamentary Secretary review this procedure in Westminster? Does not he think it unnecessarily cumbersome to expect the disabled person to apply for this written permission? Would not it be far better if the persons and vehicles were easily identifiable to allow free parking without all this formality?

Mr. Nugent: This formality is quite simple, and it is not all that easy to devise a system which is completely free from the possibility of abuse. I think that this is a simple system. It will work without any difficulty.

Kingsway Tunnel

Mr. G. Wilson: asked the Minister of Transport and Civil Aviation what progress has been made with the proposal to use the Kingsway subway as an underpass for traffic.

Mr. Watkinson: Possible uses for the Kingsway Tunnel have been under review for some time and I recently asked the

London and Home Counties Traffic Advisory Committee to reconsider the matter.
A scheme has been devised for adapting part of the tunnel as a vehicle underpass beneath the Strand—Aldwych intersection and I understand that this scheme is at present under consideration by the London County Council.

Mr. Wilson: Can my right hon. Friend say how long it would take before the scheme would come into operation if it should be accepted?

Mr. Watkinson: I understand that it would not take a long time to modify the tunnel. I think this would be a very useful addition to London's traffic facilities. It gives the kind of separation of traffic streams which is so important.

Mr. H. Morrison: Will the Minister push hard against the pundits in this matter? I had something to do with it during the term of office of the Labour Government, and the advice given was that nothing could be done. Would not the right hon. Gentleman agree that it is a tragedy that this subway is not used for traffic on a highly-congested route? I should have thought that it should be used for traffic right up to Theobald's Road. Will the right hon. Gentleman hit these fellows over the head and persuade them to adopt thoughtful and constructive thinking and to find out how to do something instead of proving that it cannot be done?

Mr. Watkinson: I am not sure whether the right hon. Gentleman is asking me to hit his colleagues in the L.C.C. over the head. In any case, I agree with him entirely. We ought to make some use of the tunnel, and I will do my best to get the job done as quickly as possible.

Motorways (Road Signs)

Mr. Gresham Cooke: asked the Minister of Transport and Civil Aviation when the interim Report of the Anderson Committee on signs to be used in connection with motorways will be published; and whether he will ensure that the necessary steps are taken to secure the erection of the required signs in time for the opening of the Preston By-pass.

Mr. Nugent: I cannot at the moment give a definite answer to the first part of my hon. Friend's Question; the answer to the second part is, "Yes, Sir".

Mr. Gresham Cooke: While thanking my hon. Friend for the information relating to the by-pass, may I ask him whether the road users' organisation will have an opportunity of commenting on the new road signs before they are actually erected on the by-pass?

Mr. Nugent: I should rather doubt that. The Committee is making a most detailed examination of current practice in this matter, both on the Continent and at home. Our intention is to make these regulations for the Preston motorway, but if in the light of experience we find they can be improved, we shall benefit by the experience.

Whipps Cross, Leyton

Mr. Sorensen: asked the Minister of Transport and Civil Aviation if the road reconstruction now taking place in the area of Whipps Cross, Leyton, will be completed by October; whether the reconstruction is then to be extended to Whipps Cross Road and Lea Bridge Road; and what further consideration has been given to the provision of pedestrian crossings when the work is completed.

Mr. Nugent: I am informed that this scheme will be completed by October. I understand that it will not be extended then, but that the Leyton Borough Council, which is responsible for the improvement, intends to reconstruct the carriageways of the Whipps Cross roundabout. No further consideration has been given to the provision of pedestrian crossings.

Mr. Sorensen: Could not the hon. Gentleman draw the attention of those responsible for this undertaking to the need for adequate crossings, in view of the fact that even now the traffic is very intense and is likely to be more so in days to come? Further, is the hon. Gentleman satisfied that progress is being made as rapidly as possible and that every effort is being made to deal with the great congestion which is bound to arise when the buses return to the roads?

Mr. Nugent: That job is going on pretty well up to schedule. As for

pedestrian crossings, it is first for the local council to decide whether they are necessary. I am sure the local council will take note of what the hon. Member has said, but it would not be for the Ministry to initiate it.

Staines

Mr. Lipton: asked the Minister of Transport and Civil Aviation what action he is taking to avoid a recurrence of the traffic-jam four miles long which took place at Staines last Sunday evening.

Mr. Watkinson: Work on Thames Bridge aggravated the situation last weekend, but the full carriageway should be available for the rest of the summer.
The only really satisfactory answer to the traffic problem here is the building of the by-pass. Preparatory work for this is going ahead as quickly as possible, and construction should start by the end of this year.

Mr. Lipton: While it is curious that the present time should be chosen for making Staines Bridge narrower than it normally is—preparatory, of course, to widening it—has the Minister taken notice of the fact that, in addition to the four-mile traffic jam at Staines, there was a seven-mile traffic jam in Essex and a three-mile traffic jam in Kent? Must we expect this sort of thing every Sunday evening during the coming summer months?

Mr. Watkinson: I have also taken note of the fact that the Government are conducting the largest road programme which this country has ever had, and if the hon. Gentleman's Government had done a little more planning in their time the position would have been even better.

Mr. Strauss: Is the right hon. Gentleman aware that traffic in this country will double in the next ten years? Is he also aware that this Government were later than any other Government in any European country in starting their postwar road development schemes, and, substantial as the Government's present scheme admittedly is, it is wholly inadequate for the needs of the country?

Mr. Watkinson: I think that the right hon. Gentleman invites the reply that if we had not wasted the years until we came to power, the position would be better today.

Mr. Lipton: In view of the totally unsatisfactory nature of the reply, I beg to give notice that I will raise the matter on the Adjournment.

Oral Answers to Questions — CIVIL AVIATION

Helicopters (Inter-city Travel)

Mr. Dodds: asked the Minister of Transport and Civil Aviation what progress has been made in developing inter-city helicopter travel in this country; how many local authorities and private interests have approached his Department on the matter; and what is the situation with regard to the selecting of helicopter landing sites in London.

Mr. Watkinson: Inter-city helicopter travel in this country mainly waits on the successful development of large multi-engined helicopters. These are unlikely to be in airline service for some years. One hundred and fifteen local authorities, including the London County Council and the City of London, and 77 private bodies, have approached my Department for technical advice.
Public local inquiries have been held to consider two applications to provide landing facilities for single-engined helicopters on the Thames in Central London. I understand that the decision of my right hon. Friend the Minister of Housing and Local Government on these inquiries will be announced in the near future.

Mr. Dodds: I thank the Minister for that information, but may we be given an assurance that the tremendous possibilities of the Rotodyne will not be lost to this country by lack of financial support from the Government?

Mr. Watkinson: Both British European Airways and my Department are very interested in the Rotodyne. I agree with the bon. Gentleman that it has great possibilities, and we must see that development work goes forward.

Mr. Beswick: Can the Minister give any closer forecast as to when we might expect an operation of this kind? He spoke of a few years. What does that mean?

Mr. Watkinson: I think the hon. Gentleman knows enough about air matters to understand that I cannot give

that sort of answer off the cuff. If he cares to put down a Question, I will get the best expert advice I can.

Air Travellers (Money Exchange)

Mr. Teeling: asked the Minister of Transport and Civil Aviation what new arrangements have been made whereby foreigners, arriving in this country by air, can have it made apparent to them where they can change foreign money before proceeding on their journeys at all hours of the day and night.

Mr. Neave: Temporary notices have been placed in appropriate parts of the passenger buildings to let arriving passengers know what exchange facilities are available, and these, when agreed, will be made permanent. Consultations and experiments are taking place with representatives of the banks at London Airport in order to reach agreement on a standard form of illuminated sign indicating that foreign money can be exchanged at their branches.

Mr. Teeling: Does my hon. Friend realise that, for instance, in Paris, the nearest airport to us, there is just one small place at the customs shed with a notice saying that one can exchange one's money there? It does not say what particular bank does it; but, at London Airport, with the five banks all, so to speak, advertising their wares, there is no sign as to which one is open after three o'clock. May I ask my hon. Friend to do everything possible to have this matter quickly cleared up? I have been asking about it during the last six months.

Mr. Neave: I certainly will. I regret that there has been some delay. At the present time, we have some temporary signs, but we intend to have much fuller signs of a permanent character in the waiting rooms, together with illuminated signs which will tell people the rates of exchange and other details.

Mr. Strauss: Are there, in fact, facilities now for foreigners coming from abroad to exchange their currency into English money at all times of the day and night at London Airport?

Mr. Neave: Yes, I understand that a 24-hour service is maintained at London Airport, but not at other airports.

Aircraft (Transatlantic Route)

Mr. Gresham Cooke: asked the Minister of Transport and Civil Aviation what further discussions have taken place between his Department and the British Overseas Airways Corporation within the past two months, as to the implementation of the Corporation's undertaking to dispose of its 10 DC.7C aircraft as soon as sufficient British aircraft were available for transatlantic use; whether he is satisfied that the Corporation can now obtain additional Britannias for this route; and by what date he intends to insist that it shall dispose of its DC.7C aircraft.

Mr. Watkinson: The future of B.O.A.C.'s DC.7C aircraft is still being considered. I will make a statement as soon as possible.

Mr. Gresham Cooke: As aircraft take a long time to build, will my right hon. Friend bear in mind the urgency of this matter, because, if British aircraft are to take the place of American ones, orders really ought to be placed very soon?

Mr. Watkinson: Yes, but I do not think that that is the question. The question is that these aircraft will have to be sold as soon as they are surplus to the Corporation's requirements. It is not a question of replacing with British aircraft.

Gatwick Airport

Mr. Strauss: asked the Minister of Transport and Civil Aviation whether he will give instructions to remove the large advertisement panels along the upper part of the walls of Gatwick Airport's main hall.

Mr. Neave: No, Sir. They are a valuable source of revenue and were provided for in the architect's design.

Mr. Strauss: Would the Minister agree that with a fine hall of this sort, built as the reception hall of an airport and which architecturally is very fine, it is a great pity to have plastered the whole way round it advertisements for all sorts of things, of all sorts of colours, some of which match and some of which do not, and which give a vulgar tone to the whole hall? Surely nowadays one can limit advertisements to a few places where they do no æsthetic damage. It is shameful to allow advertisements to be placed all

round the main hall in this fine new building.

Mr. Neave: This was part of the architect's original design, but I will look at the matter again. It may be possible to get advertisements more in keeping with the original intention of the architect.

Mr. Doughty: asked the Minister of Transport and Civil Aviation how many aeroplanes an hour can land and take off at Gatwick Airport in fine weather, and how this figure compares with the same facilities at Heathrow Airport.

Mr. Neave: The answer to the first part of the Question is 24, with mixed take-offs and landings, and to the second, 55 take-offs and landings in the same weather conditions.

Mr. Doughty: Does my hon. Friend say that the situations at Heathrow and Gatwick are approximately the same? Is not it a fact that there is a far slower take-off and landing rate at Gatwick than at London Airport?

Mr. Neave: No, Sir. I will give my hon. and learned Friend the exact details, but there is a considerable distinction in the total number of landings and take-offs between these two airports.

Mr. Doughty: asked the Minister of Transport and Civil Aviation how many airlines have notified him that they intend to utilise Gatwick Airport; and how many arrivals and departures of aeroplanes every 24 hours this will entail.

Mr. Neave: The answer to the first part of the Question is four airlines so far for regular use, and to the second part a maximum of about 150 movements per day this summer.

Mr. Doughty: Is it a fact that so far the indications are that Gatwick Airport is very much under-used? Does my hon. Friend anticipate that in future the traffic will increase, and if so, to what extent?

Mr. Neave: We expect the traffic to increase at Gatwick Airport. It will be a very profitable airport. Hon. Members who have seen it will, I think, agree that it is a very fine effort indeed. Entirely new services may probably go there from London Airport in the future.

Mr. Rankin: Does the Parliamentary Secretary realise that Gatwick Airport embodies many of the hopes that we have for Prestwick Airport?

Mr. Neave: I shall be visiting Prestwick next week.

Mr. P. Williams: Is my hon. Friend satisfied with the radio aids installed at Gatwick, and can he say whether they are capable of giving a 24-hour service?

Mr. Neave: I should like notice of that Question, but, as far as I am aware, they are perfectly in order.

Mr. Ernest Davies: asked the Minister of Transport and Civil Aviation what consultation he has had with the British Transport Commission and the civil aviation corporations with a view to speeding up railway communication with Gatwick Airport; and what steps it is proposed to take to that end.

Mr. Watkinson: The present service was planned in full consultation with my Department and British European Airways. While it meets the present traffic needs of the airport, the British Transport Commission is at present looking into the possibility of providing more fast trains in the future, although improvements will be difficult on this already very busy line.

Mr. Davies: While thanking the Minister for that reply, may I ask him whether he is aware that there are no non-stop express trains between Victoria and Gatwick Airport, that the minimum time taken is forty minutes and that many trains take longer? Therefore, some of the benefits of siting the airport where it is, with a new railway station, are lost.

Mr. Watkinson: This matter needs looking into again and the Commission is doing so.

Mr. P. Williams: Is my right hon. Friend aware that airlines other than B.E.A. operate from Gatwick?

Mr. Watkinson: I am aware that Transair and other companies operate from Gatwick, and we are glad they do so.

Mr. Woodburn: On the question of intending passengers entering London from the North and going to Gatwick, will the Minister say whether there will be an

inter-airport means of communication such as a direct bus service, or must they go through this performance of going into the air terminal, and so on? It will be very irritating to passengers who have to come into London before proceeding to the Channel Islands and elsewhere.

Mr. Watkinson: That is another question, but in fact we are examining that problem.

Passenger Service Charge

Mr. Hurd: asked the Minister of Transport and Civil Aviation how much was received last year from the airport service charge levied individually on passengers departing from United Kingdom airports; to what extent this charge is subject to international agreement; and how long he proposes to continue it.

Mr. Watkinson: The sum received last financial year for the passenger service charge amounted to £384,000. The charge is not levied by the Ministry individually on passengers, but on the airline operators, who pass the charge on.
The charge is not subject to international agreement, but has the support of the International Civil Aviation Organisation.
In view of the contribution which this charge on the airline operators makes in reducing the burden on the taxpayer for the maintenance of passenger facilities at airports, I do not propose to discontinue it.

Mr. Hurd: Does not my right hon. Friend agree that the levying of this charge individually on passengers is most irksome, when they are hot and bothered anyway? Would not it be much better to instruct the airlines using the airfields of his Ministry that they should include this necessary charge in the fare?

Mr. Watkinson: I will certainly look into that point.

Mr. Beswick: Was not it the original intention that this charge should be absorbed into the fare? Can the Minister say whether the airline companies have refused to carry out what I understood was a virtual promise in the first place?

Mr. Watkinson: I think that in some cases it has been absorbed into the fare,


but I will certainly look at the matter, because I think it would be much easier for the passengers in all cases.

Mr. Woodburn: Is the Minister satisfied that it is not charged by the airport authorities? That is the impression one gets, when one pays it separately from the ticket. I agree with the hon. Member for Newbury (Mr. Hurd) that it is a most irritating practice when people are hurrying for planes.

Mr. Watkinson: I quite agree that it is very irritating and I will consider the whole matter. The point I was making was that I cannot afford to forgo the revenue.

London Airport—Central London (Transport)

Mr. Teeling: asked the Minister of Transport and Civil Aviation, in view of the fact that access to London Airport by train via Feltham is swifter and cheaper than by omnibus from the air terminal in Cromwell Road, and in view of the additional traffic congestion which was caused by those omnibuses, if he will set up a working party to devise means of preventing the recurrence of such traffic congestion.

Mr. Neave: While I do not wholly accept my hon. Friend's assumptions, the Department has a number of schemes under consideration for speeding up traffic between Central London and the airport.

Mr. Teeling: Whilst being able to ask the question only from my personal experience since the strike started, may I ask my hon. Friend if he is aware how much easier it is to get to Waterloo Station and get on a train, for which one pays half-a-crown instead of 5s. on the bus, and arrive in complete comfort twenty minutes earlier at the airport? In view of the fact that when the strike is over we shall be cluttered up again with heavy traffic, is not it a pity that we should have to have all these extra buses when it is so simple to get there by train?

Mr. Neave: I do not agree with my hon. Friend; I do not think his facts are right. My information is that the scheduled time for airport coaches travelling from the terminal to London Airport is forty minutes, whereas it takes

fifty-six minutes to travel from Waterloo by train to Feltham and thence by coach to London Airport. We have a number of schemes in hand at the moment, such as a new motor road from the Chiswick fly-over, the widening of the Bath road and proposals for a fast rail link. We are doing everything in our power to cut down the time.

Mr. Rankin: Is not it the case that passengers are paying nothing from Feltham to the airport and therefore the half-crown is not a true reflection of the respective charges, but, as one who is using the service, may I say that it is not true that the time is less than by bus, nor is it cheaper?

Mr. Neave: The hon. Gentleman is right. If a charge were made between Feltham and London Airport this cost, plus the rail fare between Waterloo and Feltham, would exceed the charge made to passengers conveyed by airport coach.

Mr. Lipton: asked the Minister of Transport and Civil Aviation what progress has been made in providing improved rail communication between London Airport and Central London.

Mr. Neave: We are awaiting detailed proposals for monorail systems. Before a conclusion is reached my right hon. Friend would need to compare these with the scheme for a conventional rail link. He would also need to take into account the large capital expenditure involved and the possible effects on rail traffic of the construction of a new motorway.

Mr. Lipton: Does the hon. Gentleman recall that as long ago as last January he had a report on the rail link and he said that he was examining it? He also said that he would get a report on the monorail, which apparently has not yet materialised. When will something happen? When will we be given some information about the Government's intentions?

Mr. Neave: My right hon. Friend is, of course, anxious to reach a decision about these matters as soon as possible, but there are very big financial considerations regarding the scheme for a rail link with the airport. It would cost between £16½ million and £18 million, and we have to examine three separate monorail systems at the moment.

Private Flying, London Area

Mr. Leavey: asked the Minister of Transport and Civil Aviation what facilities will be available in the London area for private civil flying after Croydon Aerodrome is closed.

Mr. Neave: South of the Thames Gatwick will be available for private flying other than club flying in aircraft equipped with suitable radio. We are also examining, in conjunction with my right hon. Friend the Secretary of State for Air, what facilities may be offered to private fliers, including flying clubs, at Biggin Hill. Facilities north and west of London will not be affected.

Mr. Leavey: Can my hon. Friend say when Croydon will be closed and whether the facilities which may be available at Biggin Hill will include all-weather facilities from the radio point of view?

Mr. Neave: The question of all-weather facilities is under consideration at the moment and, as I have said, we are having discussions with the Secretary of State for Air. To minimise inconvenience to users of Croydon, it is expected that the airport will remain open until the latter part of 1958.

Four-engined Aircraft

Mr. Doughty: asked the Minister of Transport and Civil Aviation how many four-engined aeroplanes are owned and operated by the British Overseas Airways Corporation; and whether he is satisfied that this number of aeroplanes is sufficient to maintain regular services of sufficient frequency on the many routes operated by the Corporation.

Mr. Neave: Sixty-eight four-engined aircraft are at present owned and operated by B.O.A.C. The number of aircraft owned and operated is not by itself a measure of the adequacy of the fleet. B.O.A.C. still has to operate some aircraft which are not fully competitive. This situation is being progressively improved as the new aircraft on order come into service.

Mr. Doughty: Is it a fact that even including the obsolescent aircraft, B.O.A.C. does not possess nearly enough aircraft for providing services on all its routes, whatever it may hope for the future?

Mr. Neave: I do not accept what my hon. and learned Friend says. The situation will improve. For instance, there are five more Britannia 312's to come early next year, and there are nineteen Comet IV's on order between September, 1958, and December, 1959. The position, therefore, will gradually improve.

Fares

Mr. Gresham Cooke: asked the Minister of Transport and Civil Aviation whether he has now received an application from the British Overseas Airways Coporation for his approval to air fares being charged on a differential basis as between jet and propeller driven aeroplanes in the future; and if he will make a further statement on the matter.

Mr. Watkinson: No, Sir. On the second part of the Question, I am not yet in a position to add to the reply I gave my hon. Friend the Member for Bristol, West (Mr. Robert Cooke) on 2nd April last, but my advisers are urgently examining this whole matter.

Mr. Gresham Cooke: Would my right hon. Friend agree that there are a number of ordinary people not travelling on business who do not want to use the super-speed or jet planes but who want facilities to go by air, and therefore there is a case for differentiation in the prices of jet travel as compared with ordinary air travel? If that is so, will he look at the matter sympathetically when it comes before him?

Mr. Watkinson: As my right hon. Friend knows, there are widely differing views held on this matter. I think that this is a subject which should be thoroughly examined, because it is bound to be raised at the I.A.T.A. conference later this year, and that is what my Department is now doing.

Rearward-facing Seats

Mr. Beswick: asked the Minister of Transport and Civil Aviation if he will state the evidence supporting the claim that there is no significant addition to the safety of air passengers seated in rearward-facing seats and on which he bases his decision not to make such rearward-facing seats mandatory on new British aircraft.

Mr. Neave: Evidence on the greater safety of rearward-facing seats is not conclusive, but we have decided to set up a


small working group under the chairmanship of our Chief Aeronautical Adviser to review this complex question.

Mr. Beswick: Is the Parliamentary Secretary aware that this is a most unsatisfactory position? He is unable to give any evidence at all controverting the view that the rearward-facing seat is much safer. Every technical authority has voiced that opinion, the Air Registration Board has recommended it, the Royal Air Force has accepted it, and ought not he to be doing something about it?

Mr. Neave: It is difficult to give details on this very confused question in a supplementary answer. We think that it ought to be reviewed again and that is why my right hon. Friend took that course. It may be that as a result of the review we may be able to make a further statement to the House.

Air Traffic Control Centres (Modernisation Plan)

Mr. Beswick: asked the Minister of Transport and Civil Aviation his future plans for the control of aircraft over the United Kingdom to ensure proper spacing in the air lanes, to eliminate the risk of collision in the air, and generally to increase the safety factor.

Mr. Watkinson: I have authorised an extensive modernisation plan for our three Air Traffic Control Centres. Under this plan, aircraft using the airways will be under continuous radar surveillance throughout flight over this country My Department is already examining proposals submitted by the radio industry for new radar and remoting equipment to meet this requirement. Improvements are also being made to the control facilities at our major airports.
The revised system will enable our controllers to handle more traffic and still further to increase safety; it includes provision for the progressive introduction of semi-automatic control equipment and for the necessary training of specialised staff.
Financial approval in principle has been given for the capital expenditure involved which at current costs will amount to about £5 million spread over the next five years.

Mr. Beswick: I thank the Minister for that reply; but does he realise that the

public, who have heard all these stories about near-misses and who have seen the approach speed of aircraft already go up to the 1,000 miles per hour range, will expect this programme to be given absolute priority? May I ask if he has the fullest possible co-operation of the military people? Has he yet solved the problem of having civil control over military aircraft which may want to pass through the air lanes?

Mr. Watkinson: The answer is, of course, that we have to give over-all top priority to this problem of controlling air space for these aircraft and many other aircraft, and that is being done. That is the purpose of the programme which I have announced. As to the problem of unified control, I am satisfied that we have now a much better arrangement and the control of military aircraft which fly down the air lanes will be exactly the same kind of control as that for civil aircraft.

Oral Answers to Questions — MINISTRY OF DEFENCE

Recruitment

Mr. Dodds: asked the Minister of Defence if he will make a statement on the up-to-date recruiting figures for the Armed Forces; and what success is being achieved in the various efforts to obtain the necessary manpower and the ending of conscription.

Mr. Mathew: asked the Minister of Defence if he will make a statement on the progress of voluntary recruiting for the three Services, expressed in terms of numbers and man years.

The Minister of Defence (Mr. Duncan Sandys): The recent trend in regular recruiting is encouraging. In April there were about 5,000 recruits compared with about 3,800 in April last year. The Army figure was particularly good—nearly 3,000 against about 2,400 last year, with a far larger proportion entering on long service engagements. Recruiting for the three Services in April, 1958, represents about 31,000 man-years, as compared with about 17,000 for April, 1957.

Mr. Dodds: Will the right hon. Gentleman state what influence these figures will have, if maintained, on conscription? Is he aware that many people take a dim


view of his ten-to-one offer that conscription will end in 1962, particularly when, some months previously, 1960 had been the year in which it was suggested that it would end? What has gone wrong?

Mr. Sandys: The hon. Gentleman should take the trouble to look up his facts before he asks a supplementary question of that kind. He knows perfectly well that the Government's plan is to end the call-up in 1960, which means that National Service would end in 1962. As for the odds, when I see the May figures I shall be prepared to consider offering an improvement.

Mr. Shinwell: Is the right hon. Gentleman aware that many people and most of us, if not all of us, would like to encourage him in his efforts to put an end to the call-up?

Mr. Sandys: I much appreciate the support which I constantly receive from the right hon. Gentleman in his patriotic approach to all matters concerning national defence.

Hon. Members: Hear, hear.

Mr. Shinwell: Why must the right hon. Gentleman go and spoil it?

British Forces, Germany (Support Costs)

Mr. Fernyhough: asked the Minister of Defence, in view of the fact that £39,500,000 was included in the current year's defence Estimates as the German contribution towards the cost of British forces stationed in Germany and that the direct contribution from the Germans will now be only £12 million, to what

extent the defence costs will be reduced accordingly.

Mr. Sandys: I would refer the hon. Member to the full statement on this subject made by my right hon. Friend the Minister of State for Foreign Affairs on 10th June.

Mr. Fernyhough: The right hon. Gentleman's reply does not answer my Question. I asked him whether, as the result of the bad bargain we struck over support costs, the defence programme would be reduced. If it is not to be reduced, will he say whether he will have to bring in Supplementary Estimates? Does not he think that it would pay the Government to show a little more toughness in these negotiations—the same as they have inspired Sir John Elliot to show towards the London busmen?

Mr. Sandys: If the hon. Gentleman reads the statement to which I have referred he will find that it covers the point raised in his Question and a great deal more. So far as Supplementary Estimates are concerned, no doubt Supplementary Estimates will have to be presented to Parliament. Among other things, the £12 million referred to in the Question is a down payment for each of the next three years and is the only element in the arrangement which can be regarded as an appropriation-in-aid. The other benefits received under the agreement do not reckon for that purpose.
Mr. de Freitas: Will the Supplementary Estimates be in respect of any Service in particular, or of all the Services, or some of them?

Mr. Sandys: All or some.

Orders of the Day — FINANCE BILL

Considered in Committee [Progress, 17th June.]

[Sir CHARLES MACANDREW in the Chair]

Clause 16.—(PURCHASES OF SHARES BY FINANCIAL CONCERNS AND PERSONS EXEMPTED FROM TAX.)

3.31 p.m.

Mr. Eric Fletcher: I beg to move, in page 11, to leave out line 35 and to insert:
the thirteenth day of December, nineteen hundred and fifty-five".

The Chairman: We can take with this Amendment the Amendment in the name of the right hon. Gentleman the Member for Huyton (Mr. H. Wilson), to Clause 17, in page 12, line 28.

Mr. Fletcher: The purpose of the Amendment is to make 13th December, 1955, the effective date for putting an end to dividend stripping. The 13th December, 1955, is very nearly, though not quite, the date which the Chancellor of the Exchequer himself suggested in his Budget speech. He chose 26th October, 1955, in his Budget speech. He then intended to make the provisions against dividend stripping retrospective to that date. We have selected a slightly later date, because we have given the Chancellor the benefit of the doubt, and we prefer that the retrospective aspect of these provisions should date back not to the first warning which was given by the then Financial Secretary but to the final warning on Third Reading of the Finance Bill in 1955, when, with the then Chancellor's express approval, the original warning was repeated and categorically reaffirmed.
It is not necessary for me, on this Amendment, to argue the case for stopping dividend stripping. The case for provisions in this Bill to that effect was
effectively made by the Chancellor himself, and later by the Financial Secretary, when he moved the Second Reading of the Bill. On this Amendment we are concerned merely with the question whether or not these provisions should have retrospective operation so that effect may be given to the clear and explicit warning given three years ago, that if the practice of dividend stripping continued then new

legislation would be introduced with retrospective operation. That, indeed, was the Chancellor's first intention. He has subsequently recanted, and we now urge him to reflect that his original thoughts were best and that, on third thoughts, he should adhere to his original intention.
In view of the complexity of this whole subject and of the fact that, as I understand, the only defence open to the Chancellor's present conduct is that the warning given in 1955 was not as full and explicit as it might have been, it will be necessary for me to trouble the Committee with a few preliminary observations about the subject of dividend stripping. I cannot do better than commend to the Committee the very lucid description of dividend stripping that was given by the Financial Secretary to the Treasury in moving the Second Reading of the Bill on 12th May.
The hon. and learned Gentleman pointed out in justification of this Clause the mischief which the Clause was designed to meet. He made it quite clear that although the device of dividend stripping has a number of variants it has always one essential feature. There is one essential feature common to all forms of dividend stripping. There are numerous variations of the device, but the feature which is common to all forms of dividend stripping, as the Chancellor will know, is that the device is used to extract from a company cash which has been accumulating out of profits and out of profits on which tax has been paid to the Exchequer, paid at a time when the shareholders in the company which had earned the profits were liable to have suffered Income Tax, so that the profits made by the company would have been diminished by tax at the standard rate—

Mr. Leslie Hale: Does my hon. Friend not think he might now explain the Clause, because I was hoping to speak on it?

Mr. Fletcher: Nothing would deter me from encouraging my hon. Friend to speak on any Clause in the Bill. I very much hope we shall have the benefit of my hon. Friend's guidance as to the meaning of the Clause, but at the moment we are not concerned with that. I was trying to explain and paraphrasing the


explanation given on 12th May by the Financial Secretary.
I was saying that there are certain essentials common to all forms of dividend stripping. The first is that a large
amount of tax has been paid by a company. The next feature which is common to all is that a device has to be found to extract the cash reserves of that company into the hands of some other company which, because of its privileged position, either, for example, because it is a charity, or because it is a company which has accumulated tax losses, is in a preferential position in taxation compared with the company which earned the profits and paid the tax. If a device is devised whereby those accumulated profits can be extracted and passed into some other hands, either directly or indirectly, the privileged company taxpayer is able to recoup from the Revenue tax which has been properly paid.
There are, as I say, various forms of it, and the hon. and learned Gentleman gave three examples of how the avoidance trick starts. He said:
The avoidance trick consists of getting shares in company A into the hands of company B and using the liquid reserves of company A to pay a dividend to company B. That…is treated by the law as a gross dividend from which Income Tax…has been deducted to leave the net dividend actually paid."—[OFFICIAL REPORT, 12th May, 1958; Vol. 588, c. 41.]
Company B, the hon. and learned Gentleman explained, being in a position to claim repayment of tax, is able to go to the Revenue and recover from the Exchequer the tax which has been legitimately paid.
The hon. and learned Gentleman went on to give examples of three methods of dividend stripping. He described the first device as a sheer technicality and he explained that Clause 16 (3) was intended to close that gap. The second form which he cited was a method designed to get round the requirements of the 1955 legislation. He went on to say that the most common form in recent months has been the switch between the company with large taxed reserves and another company with large trading losses. It is the easiest thing in the world for a big finance house to buy a company with taxed reserves and another company with large trading losses and switch the one to the other and by that device recover from the Revenue tax that has already been paid.
That has been the situation which has existed since at least the year 1954. It was well-known to the Treasury in 1954. It was the subject of comment by the minority Report of the Royal Commission published in June, 1955. It was a subject which, quite obviously, ought to have been dealt with by the present Lord Privy Seal, then Chancellor of the Exchequer, in his spring budget of 1955, but at that time he was too preoccupied with having an early General Election to take the trouble to introduce a proper Finance Bill to check this and other notorious tax avoidance devices.
I must give the present Chancellor credit for the fact that when he came to prepare his Budget, which was introduced on 15th April, 1958, he then realised that this shocking loss to the Revenue had been going on long enough. He realised that whereas a certain number of people had very sensibly heeded the warning given by his predecessor in 1955, a number of others had thought that they would gamble on the warning not being carried out. Therefore, in his Budget speech of 15th April, the Chancellor said:
The Committee may remember that this is a device for extracting the liquid taxed reserves of one company with considerable, and unjustified Income Tax advantage, to another company which gets those reserves as taxed dividends, and at a considerable cost to the Revenue
Although my right hon. Friend the Lord Privy Seal dealt with this in his autumn Budget of 1955, and despite stern warnings given them, I am sorry to say that apparently the fascination of dividend stripping is such that it is still being practised by some. Although the form of the device has somewhat altered—it is now largely practised by companies with trading losses—it remains quite unacceptable and I must put a stop to it.
My right hon. Friend the Minister of Housing and Local Government gave clear warning in 1955, in another capacity, that the Government would not hesitate to legislate against subsequent attempts at dividend stripping, and to make such legislation retrospective. Accordingly, the provisions I now propose will be retrospective to 26th October, 1955, which was the governing date of the earlier legislation."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 61.]
That statement was generally applauded in the Committee when it was made.
It was well received in the Press, initially, at any rate. There was no adverse comment in responsible financial papers on the Chancellor's decision to make this anti-dividend stripping provision retrospective. For example, the Economist of 19th April, commenting on


the Chancellor's Budget statement, said this, and it was typical of other comments:
Retrospective legislation is always poorly regarded, but applied to dividend stripping it can hardly warrant too much excitement. This is professional stuff, in which the rules are always rough. This obvious avoidance trick was the subject of a warning of retrospective action in 1955….
The Economist made it quite clear that it approved the Chancellor's decision.
3.45 p.m.
But what happened then? The Chancellor was quite obviously subject to representations from interested quarters in the City. There was a deluge of correspondence, not always well-informed, in The Times. There were squeals from those who, despite the 1955 warning, had continued to indulge in dividend stripping—the people with whom the Minister of Housing and Local Government was concerned in 1955 and the Chancellor was concerned in his Budget speech, the people who had been robbing the Revenue at the expense of the general taxpayer.
I have been unable to find any precedent for what happened next. Within a fortnight
of his Budget speech, and before there had been any discussion in the House of Commons, the Chancellor capitulated. On 29th April, on the eve of the publication of the Finance Bill, the Chancellor came to the House to say that he had changed his mind and had changed it for the worst. It is important to observe precisely what he said. It was as follows:
I said last week that I would give further thought, before the Finance Bill, to the proposal that the legislation to deal with dividend stripping should be made retrospective to 26th October, 1955. I have done so, taking into account the views which have been expressed in this House"—
I interject there the observation that, apart from some comments by hon. Members opposite, there had been nothing but approval from this side of the Committee of the Chancellor's original announcement, and there had certainly been no opportunity for the House to discuss it. Therefore, I do not think that it was very flattering or complimentary to the House of Commons that the Chancellor changed his mind without having heard expressions of view from all quarters.
The Chancellor added:
and all other relevant considerations, including the need to be sure that the warning given in 1955 was wide enough to cover the sort of cases now in question."—[OFFICIAL REPORT, 29th April, 1958; Vol. 587, c. 196.]
Because I regard this Amendment as involving a principle of considerable importance in connection with the conduct of both this Budget and future Budgets, it is necessary to analyse and deal with the reasons which the Chancellor has given for his sudden, precipitate capitulation.
The right hon. Gentleman's second decision really rests on three broad propositions. I do not think that I do him an injustice when I say that they are: first, that all retrospective legislation is prima facie bad and should be avoided; secondly, that retrospective legislation can be justified when a definite warning is given; and I suppose that he would add that in this case, in 1955, the warning actually given was not sufficiently wide and precise.
It will be necessary to say a few words about each of these propositions. First,
as to the basic assumption that there is something abhorrent in all retrospective legislation. That is a sentiment which I think the Chancellor has accepted without criticism and without understanding it, and as a result he has been deluded. It never has been the law of England that all retrospective legislation is something to be avoided. This catch phrase has been repeated in recent years by interested parties anxious to prevent tax avoidance payments of this kind being stopped, with retrospective effect.

Mr. Geoffrey Wilson: Will the hon. Gentleman allow me to interrupt? I gather that his argument is that the agitation against retrospective legislation is of recent date. Is he aware that the founders of the American Constitution wrote into their law as long ago as 1788 that ex post facto law could not be passed, and that this was based on experience of English law?

Mr. Fletcher: I shall have quite enough to do to explain to the best of my ability English law—

Mr. Kenneth Pickthorn: The hon. Gentleman is wrong so far.

Mr. Fletcher: I was listening to the interjection about American law. I shall


be interested to hear what he hon. Gentleman the Member for Carlton (Mr. Pickthorn) said.

Mr. Pickthorn: The hon. Gentleman said that it had never been English law that all retrospective legislation was to be avoided. Plainly, that must have been throughout the period of the English law when there was no recognised legislature, because it was the law, at least until late in the sixteenth century.

Mr. Hale: Before my hon. Friend replies, would he permit me to remind him that if the British written Constitution, which does not exist, had contained provisions that have just been quoted relating to the American Constitution, we would have been deprived of the services of a large number of Conservative Members who were disqualified through their own laches and who, by ex post facto legislation, have been permitted to sit here?

Mr. Fletcher: As you know, Sir Charles, I do not object to giving way to interventions, although I ought to say for my own protection that it sometimes disturbs the fluency of one's argument. Therefore, I hope that my interruptors will not object if I try to deal with their respective interventions in my own way.
The truth is that there has always been a great deal of retrospective legislation in this country, some of it good and some of it bad. To appreciate the significance of it one has to remember that legislation can take three forms. We can be talking about criminal legislation, we can be talking about civil legislation—Acts of Parliament which give rights to various parties, to individuals as between each other—or we can be talking about fiscal legislation. Different considerations—different philosophic, different juristic considerations—apply in each of those three different realms of law.
With regard to the criminal law, modern society, of course, regards it as repugnant and abhorrent that anything which was not a crime at the time it was committed should be made a crime by any ex post facto legislation.

Mr. Pickthorn: Oh.

Mr. Fletcher: I would tell the hon. Gentleman that there was a time when there was a great deal of ex post facto legislation in the criminal sphere. There were a great many Acts of attainder

which were unjust and which were passed by this House to punish people by ex post facto criminal legislation. That would not be tolerated today. Recently, we have had the Nuremburg trials, which were of very doubtful validity. Indeed, it is a pertinent criticism of them that they came very near to—my hon. and learned Friend the Member for Northampton (Mr. Paget) would say that they exceeded—the bounds of permissible ex post facto legislation, and they operated in the criminal sphere. I mention this merely to show that it is not true to say that there has never been any retrospective legislation.
With regard to civil actions, it has always been recognised that rights as between one litigant and another which existed at a given date could be changed with retrospective operation by ex post facto legislation. I am not now thinking merely of Acts of indemnity which have taken away, for example, the rights of common informers and others to bring actions and to recover damages for some technical offence. There are a series of those Acts of indemnity which are inherently retroactive, and deliberately so, in their operation.
The classic passage on this subject, as the Minister will know, and which is sometimes used, but used incorrectly, to justify the proposition that all retrospective legislation is bad is the celebrated judgment of Mr. Justice Willes in the case of Phillips v. Eyre, the action against the Government of Jamaica. I do not propose to quote all he said, but those who are interested can find it in my Second Reading speech on 12th May, 1958, at col. 85 of the OFFICIAL REPORT. In that judgment, which is regarded as the high water mark by those who hold up their hands in horror at any thought of retrospective legislation, they will find that Mr. Justice Willes said this—perhaps the hon. Member for Carlton will bear it in mind:
To affirm that it is naturally or necessarily unjust to take away a vested right of action by Acts subsequent, is inconsistent both with the common law of England and with the constant practice of legislation.
I commend that to the hon. Gentleman.
We are not today primarily concerned with criminal law or civil law but with fiscal law, and different considerations again apply in this realm. In so far as


there may in certain cases be some philosophic objections to some retrospective legislation in other respects, that doctrine has as a result of many years' experience become considerably modified when one is dealing with fiscal legislation.
There are two reasons for it. The first reason is that there is an element of retrospection in all fiscal legislation. Fiscal legislation does not deal with what is right and what is wrong. It is not a question of making something criminal that was justifiable when it was done. It is not a question of taking away the rights of one individual as against another. Amongst other things, fiscal legislation regulates the amount of a person's income which he is entitled to keep after the State has taken what it decides to take by way of taxation.
Inherently, much fiscal legislation contains some retrospective element. For example, the Income Tax one will pay next year will be based on this year's income. We do not know what the standard rate of Income Tax will be next year, except, of course, in the case of P.A.Y.E. payers. Nobody earning an income today can safely base his arrangements for the future on the assumption that the Income Tax which he has to pay a year ahead, or the Surtax which he may have to pay two years ahead, will be at the present rates.
If I may give another illustration, let us take Estate Duty. One is still entitled to try to build up a capital fortune and a certain number of people succeed in doing so, since we do not yet have a capital gains tax in this country. Yet no one is entitled to build a fortune on the assumption that the rates of Estate Duty now operative will remain constant. In so far as they may be changed in years to come, they will have a retrospective operation on fortunes that are now being acquired.
I do not, however, rely on this argument. What I think is far more important to recognise is that for the last thirty years or so the doctrine has become established in our fiscal legislation that if, in one Budget speech, a Chancellor of the Exchequer gives a clear warning that a particular tax avoidance dodge is being exploited at the expense of the Revenue, that device will be blocked by

a subsquent Finance Bill with retrospective operation. This is so important that I must trouble the Committee by reminding them of the very distinguished precedents which have been laid down in justifying that doctrine. It is the Chancellor's deliberate, and I think misinformed—I hope that it is only misinformed—departure from that doctrine which I find so regrettable.
4.0 p.m.
I will not go back more than twenty years. Mr. Neville Chamberlain, about whom hon. Members opposite can hardly complain, said on 20th April, 1937:
…if people persisted in devising these ingenious contrivances for defeating the intentions of the Legislature, they must not expect that they would escape retrospective legislation."—[OFFICIAL REPORT, 20th April, 1937; Vol 322, c. 1610.]
He proceeded to recommend remedies to defeat tax avoidance.
Two years later, Sir John Simon, than whom, I suppose, no one ever pretended to be a more potent champion of the rights of the individual and the liberties of the subject in any issue with the State, when introducing his Budget in April, 1939, said:
These schemes of tax avoidance are so flagrant and are so deliberately devised to get round the legislation of 1936 and 1937 that I shall have no hesitation in recommending that retrospective effect shall be given to them as far as necessary, in accordance with the very clear warning I gave last year."—[OFFICIAL REPORT, 25th April, 1939; Vol. 346, c. 993.]
In support of my general proposition may I just pray in aid two further quotations from Conservative statesmen? I do so because I am sure that they will appeal to hon. Members opposite, who appear to feel so strongly about retrospective legislation. The present Lord Chancellor, then Sir David Maxwell Fyfe, speaking in the House on 28th April, 1949, said:
…I put this principle forward as quite unchallengeable; that the justification for retrospective legislation is that a reasonable and definite warning has been given to people likely to practise the matter to be struck at, and they have been given the opportunity to avoid that course."—[OFFICIAL REPORT, 28th April, 1949: Vol. 464, c. 499–500.]
Finally, I quote that fount of all Conservative wisdom at the moment, the present Lord Hailsham, speaking in this House as Quintin Hogg as recently as 15th June, 1950, when he said:
I do not see anything in principle objectionable if people seek to pick a hole in an


Act of Parliament deliberately to defy its purposes and deliberately to get round its provisions, to repair the hole retrospectively. I think they must expect Parliament to protect its own policy in that way.
That is what the Chancellor ought to have done, and he knows that he ought to have done it.

Sir Toby Low: The hon. Member must quote accurately, especially as he has quoted it on a previous occasion. He has used exactly the same quotation before. He ought to finish it. The quotation by the Lord President of the Council finished with the words "at any rate, up to a point".

Mr. Fletcher: The right hon. Member is right. I made this quotation on Second Reading. If the right hon. Member looks at column 87 of the OFFICIAL REPORT he will see that I quoted the whole of it, which I will read again:
I do not see anything in principle objectionable, if people seek to pick a hole in an Act of Parliament deliberately to defy its purposes and deliberately to get round its provisions, to repair the hole retrospectively. I think they must expect Parliament to protect its own policy in that way, at any rate, up to a point."—[OFFICIAL REPORT, 15th June, 1950; Vol. 476, c. 708–9.]
They are the very distinguished precedents for this general doctrine that, once a clear warning has been given, taxpayers must expect subsequent legislation to have retrospective operation. The reason is quite clear. As the Chancellor knows, there is a constant struggle, a battle of manœuvre, going on between the Exchequer and the taxpayer. Methods of tax avoidance are continually being devised. In the nature of things it, is impossible for the Exchequer to catch up on every new form of tax avoidance.
That is why Parliament and the law of England have deliberately armed the Exchequer with this weapon of being able retrospectively to legislate, once a clear warning has been given. The more complex modern society becomes the more necessary it is that this weapon should be used, and therefore the more regrettable it is that the Chancellor should depart from the precedent laid down by his predecessors.
I do not want to be misunderstood. I am neither excusing nor condemning those who practise tax avoidance; that is not part of my argument at the moment. Tax avoidance is nothing new.

It has been going on since the Middle Ages. I suppose that it could be fairly said that a great many of our loveliest abbeys and cathedrals would never have been built had it not been for the desire of a great many wealthy people in the Middle Ages to make endowments to the Church in order to avoid feudal dues and Royal exactions.
It may well be said that Henry VIII got his own back in the end with the dissolution of monasteries, when a great deal of the wealth of the Church was transferred back to the State, but I very much doubt whether anyone would say that any of the finance companies who benefit by dividend stripping and tax avoidance devices are particularly conspicuous for their endowments to charity or learning or other worthy objects. The Chancellor has a duty to follow the precedents which have been laid down for him.
This brings me to the crucial point, which is whether a clear warning was given. That means seeing precisely what was said in 1955. When dividend stripping first engaged the attention of the House, in the autumn Budget of 1955, the matter was debated on three separate occasions: first, on Second Reading, then in Committee, and, finally, on Third Reading. The first warning was given by the Financial Secretary, the present Minister of Housing and Local Government, who, in commending to the House Clause 4 of the Finance Bill, said:
Clause 4 is designed to exterminate the small but ingenious tribe of dividend strippers.
It is quite clear that what was in his mind at the time was to put an end to all sorts of dividend stripping. He said:
These are people who have discovered a device for extracting from companies their cash reserves, without creating any liability to Surtax."—[OFFICIAL REPORT, 8th November, 1955; Vol. 545, c. 1664.]
To convince the Chancellor that this warning was effective it is necessary to remind him of exactly what was said in the 1955 debate. My right hon. Friend the Member for Huyton (Mr. H. Wilson) interrupted the Minister of Housing and pointed out that this was not a new problem and that other Chancellors had had to consider how to stop similar devices. Alternative suggestions were put forward for making the 1955 legislation more watertight. My right hon.


Friend asked why that Bill, now the 1955 Act, was framed in such a way and whether it would not have been more effective to have put the tax on the vendor.
I quote this to show that the present Minister of Housing and Local Government had no doubt whatever that he was intending his warning to cover the whole field of dividend stripping:
No, Sir. The only reason is that we want to make sure that it is absolutely effective in our object of killing dividend stripping. Whether this is precisely the right, or the best way of doing it, might certainly be discussed in Committee, but our purpose in so drafting it is to ensure that the Statute will be effective."—[OFFICIAL REPORT, 8th November, 1955; Vol. 545, c. 1666.]
Now we come to the Committee stage where you, Sir Charles, as you are now doing, presided over our deliberations. On 29th November, 1955, my right hon. and hon. Friends, acting as always like a vigilant and diligent Opposition; had the intelligence to see that the Government's Clause was ineffective. So we put down a number of Amendments to make it watertight. We explained the reasons why we had the same objective as the then Treasury spokesmen—they change almost every year and it is very difficult to keep up with them. We tried to explain how much wiser they would have been had they adopted our Amendments.
Then this most remarkable thing happened, which I do not think has been quoted before in this Committee. Amendments were moved by the present Leader of the Opposition and supported by my hon. Friend the Member for Sowerby (Mr. Houghton) and others. Strange though it may seem, it is easy to be wise after the event—it was not very difficult to be wise at that time—these Amendments were resisted by the then Treasury spokesman, the present Parliamentary Secretary to the Ministry of Education. It is important to note what was said by the hon. Baronet in resisting the Amendments:
I can assure the right hon. Gentleman that a great deal of thought has been given to the drafting of this Clause, and if the final version is not satisfactory to hon. Members opposite it is not due to any lack of considering the possibilities. We thought, on the one hand, that it would be contrary to normal precedent to make this Clause retrospective"—

so that even then, in 1955, the Government were considering whether they should make it retrospective. The hon. Baronet said that they wondered whether they should make it retrospective. I had better quote the exact words:
We thought, on the one hand, that it would be contrary to normal precedent to make this Clause retrospective without as it were, giving warning that we intended to deal with this whole abuse of dividend stripping…
Later, the hon. Baronet said:
Here, I should like to give a very definite warning. Dividend stripping has proved a profitable game to those who play it, and although we have tried to draw the present legislations tightly all experience in dealing with tax avoidance experts warns us that clever people may find devious and complicated ways around the legislation. Therefore, I should like to make it absolutely clear, and my right hon. Friend"—
that is, the. Chancellor—
specifically asked me if I would say this tonight, that the position will be watched. If, later, abuses are found to develop outside the six years, the question of tightening up the law may then have to be considered notwithstanding any administrative problem that would result."—[OFFICIAL REPORT, 29th November, 1955; Vol. 546, c. 2227–8.]
Then this extraordinary thing happened. My right hon. Friend the Leader of the Opposition, very dissatisfied with what the hon. Baronet had been saying, and still having the wisdom and foresight to see that our Amendments would have avoided the situation which has arisen today, said this, and I commend him for his prescience:
I was glad to hear what the Economic Secretary had to say about what he called the second point in the Amendment, that is, the point about the time limit. In particular, I welcome his warning to anybody who intends to defeat the object of this Clause.
I wish the Committee to mark these words. My right hon. Friend continued:
I can only hope that should the object be defeated"—
that is, the object of the 1955 legislation—
in any way, and at some future Committee stage of a Finance Bill it is discussed,"—
that is what we are doing today; this is the Committee stage of a Finance Bill—
we shall not then have the argument put forward that an Amendment from the Opposition is retrospective.
My right hon. Friend said he hoped that when this precise situation—which he then envisaged—occurred it would not be argued by the Government against an


Amendment such as this that it
is retrospective. The hon. Baronet said:
I can give that assurance unconditionally."—[OFFICIAL REPORT, 29th November, 1955; Vol. 546, c. 2229.]
Does the Chancellor of the Exchequer repudiate that?

4.15 p.m.

Mr. Graham Page: . All these quotations which the hon. Gentleman has given were in the context of a Clause relating to finance companies. Indeed, he has mentioned that throughout his speech. Would he say that these undertakings, as he has called them, apply to ordinary trading companies as well?

Mr. Fletcher: I do not think that there is the slightest doubt about that. The quotations which I have given in the context of the Bill, and
in the context of the speech of my right hon. Friend the Member for Huyton and others all dealt with the whole sphere of dividend stripping. Although at the time one particular kind of device might be more prevalent, there were, obviously, a whole gamut of ways in which the tax reserves of companies could be extracted. It was obvious by the language used by the Chancellor, by the Financial Secretary and by the Economic Secretary that they were trying to deal with the whole question of dividend stripping. Our complaint is that they did not do it effectively.
Whether they did or not does not now matter. The warnings were explicit. They were aiming at exterminating the evil of dividend stripping. The important feature of this evil is that a company which has legitimately and properly paid its tax can, as a result of some device, manipulate its affairs so that a different set of people can go to the Revenue and get that tax back. We do not know whether the amount that the Revenue has lost to date is £4 million, £6 million, £10 million or £12 million. Even the Treasury does not know.
If it is necessary to pursue this matter, let us note the language used during the Third Reading debate on 13th December, when the Financial Secretary, speaking with the authority of the Chancellor, said:
Finally, the dividend strippers have been given notice to quit. With the authority of my right hon. Friend the Chancellor of the Exchequer, my hon. Friend the Economic Secretary has also put it on record that if

clever people should discover ways and means of getting round this legislation, which is squarely directed against dividend stripping, the Government will not hesitate to stop any such loophole by further legislation, and to make such legislation retrospective."—[OFFICIAL REPORT, 13th December, 1955; Vol. 547, c. 1022.]
I cannot believe that anything could be clearer.
I apologise for having detained the Committee for so long. In conclusion, I say—I wish to be moderate in the language I use—that I accuse the Chancellor of two things. First, I accuse the right hon. Gentleman of not having understood this matter properly when he introduced his Budget speech and then made that unfortunate pronouncement a fortnight later. I think it excusable if the right hon. Gentleman did not understand because, after all, he is relatively new to the Treasury.
My second accusation is more serious. I accuse the Chancellor of having betrayed his better judgment; of having flinched from his duty; of having preferred the interest of completely unmeritorious finance companies and others to the interest of the Exchequer and the taxpayer. I accuse him of having manifested the common failure of Conservative Chancellors and Ministers of always being more sensitive to the interests of wealthy taxpayers, even when they are engaged in the most notorious form of tax avoidance, than to those of the Exchequer, the protection of whose interests should be his primary and paramount concern. I accuse the Chancellor of knowing what was the path of righteousness and duty, but of having chosen the opposite and committing the sin of apostasy.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory): The purpose of the Amendment before the Committee is to reverse, to some extent, at any rate, the decision which I announced to the House on 29th April to remove retrospection from Clauses 16 and 17.
I listened with attention to the case which the hon. Member for Islington, East (Mr. E. Fletcher) made. If I may say so, there was only one thing in what he said about myself which I resented at all, and that was his suggestion that I had been influenced in this decision by the views of the kind of people who indulge in these practices.


I will go on to say what did influence me, but I should like to say now, with the greatest emphasis I can, that nothing said by anyone in those sort of quarters influenced my decision in the slightest degree.
The effect of the Amendment as drafted would be very limited indeed. It would apply in cases where shares in a company were acquired after 13th December, 1955, but only, I believe, where tax liability for the current year, 1958–59, was affected. Since it is the practice of dividend strippers generally, I believe, to take their dividend as quickly as they can after acquisition of the shares, only a very few cases would be likely to be caught by the Amendment which would not be caught by the Clause as it now stands. However, I do not want to dwell on that particularly, because it is clear from what the hon. Gentleman has said, I think, that right hon. and hon. Gentlemen opposite want me to go a good deal further than the Amendment would go and that they are really challenging the decision I took at the end of April.
There is very little I can add to what I have already said about the reasons for my decision. I have already put on record that, in my view, retrospective legislation in fiscal matters and, even more, I think, in other legislative matters, needs very unusual circumstances indeed to justify it. The more infrequently it is used the better. I would not myself go as far as to say that it was never justified. Indeed, when I was preparing my Budget, I formed the view, looking at the precedents, that here was a situation in which retrospective legislation would be appropriate. I then listened to the arguments adduced in the House and in many quarters outside the House, also. I do not say that I have been wholly convinced by all the arguments against retrospection. While, as I said, I am strongly against retrospection as a principle in legislation, I do not go as far as some hon. Members go in regarding it as entirely illegitimate in all circumstances, or in the views which have been expressed in many quarters that warnings are entirely irrelevant.
I should like to mention two aspects of the matter of warnings. First, was the then Financial Secretary's warning,

in 1955, for example, specific enough to cover the new forms of dividend stripping since devised? Secondly, are such warnings anyway an effective justification for subsequent retrospective legislation? Different opinions can, no doubt be held, and are passionately held, I think, on both those points. Retrospective legislation is something which must be judged according to the circumstances of each case, with, as I have said, a strong bias against the use of retrospective action.
In my opinion, one essential prerequisite, if retrospective legislation is to be used, is that those concerned should have every reason to be aware of the taxation consequences of their specific actions and, therefore, have a chance of avoiding it if they wish. In this case, the warning took the form of a statement by Ministers in the House and recorded in HANSARD. Different views are held about whether such a warning constitutes a valid warning which can be assumed to be available to, and in the mind of, anyone contemplating this kind of action at any time in the future.
Nothing that I have said is intended to lay down the proposition, as far as I am concerned, that in no circumstances whatever would retrospective legislation, after warning, be justified. I should be reluctant myself to countenance quite so extreme a view as that. All Governments must be vigilant against deliberate tax avoidance. If the weapon were to be entirely removed from our armoury, future legislation against avoidance might have to be much more lengthy, complicated and meticulous even than it is today, and the best brains of parliamentary counsel and Somerset House might have to be continuously applied, perhaps to a ludicrous degree, to the task of thinking out, to counter them specifically and in advance, every conceivable modification and refinement of any device which the wit and ingenuity of the human mind is able to contrive.

Mr. Harold Wilson: Is the Chancellor further aware—this is a point which we have stressed many times from 1955 onwards—that that legislation would be not only meticulous, lengthy and involved, but it would involve some very unfair burdens on legitimate traders and legitimate financiers merely for the sake of avoiding the use of retrospective legislation or other means to deal with people who are thoroughly unscrupulous?

Mr. Amory: I was going on to say, before the right hon. Gentleman interrupted, that I do not think that most taxpayers, who find our present legislation quite complicated enough, would welcome that kind of development. I believe that they would feel that it interfered with their legitimate activities, perhaps to a quite unnecessary and regrettable degree.
There are, of course, those who would like to see in the tax code some general provision which would enable action to be taken by the Commissioners of Inland Revenue to nullify for tax purposes any transaction whatever if it resulted in the avoidance of taxation. I shrink from that with even greater repugnance, for it might mean bringing under review ordinary transactions such as a transfer from gilt-edged, we will say, to National Savings Certificates in order to secure tax exemption, or the making of a life covenant for an aged mother.

4.30 p.m.

Mr. Hale: Surely such a provision did exist until 1945 or 1946 and the Commissioners had power to set aside agreements.

Mr. Amory: It seems to me that that, in general, would be far too wide a power to give, and very undesirable. I am certain that it would be intolerable if any transaction in the whole world of business were to be open to challenge on tax avoidance grounds. I do not think that that proposal would be at all good.
What I want to reaffirm to the Committee is that my decision, after listening to the arguments advanced, not to apply retrospection in these cases where shares have been acquired before the date of the Budget this year, was based just on this fact, that different opinions were passionately held about the fairness of retrospection in this case, in view of the nature of the warnings given and in view of the principle of the objections to retrospection in general, and I concluded rightly or wrongly—I think rightly—that in those circumstances the balance of right seems to lie in giving the benefit of the doubt to the subject rather than to the Crown. I believe that that decision was right, and I invite the Committee, for that reason, not to accept the Amendment.

Mr. Frank Bowles: The right hon. Gentleman said twice that he does not think that the House of Commons is a sufficiently important place

to utter warnings to "sharks". Where does he propose to go—to their annual dinner, or something?

Mr. Amory: I did not express an opinion beyond saying that two views were held about the nature of that kind of warning.

Mr. H. Wilson: I do not intend to make a speech, but I think that one comment should be made on what the right hon. Gentleman has said. It is clear that we have not got a Chancellor of the Exchequer. All we have got is a well-intentioned weathercock. At the time of the Budget he was obviously under strong pressure from the Board of Inland Revenue and he reflected that pressure in his Budget speech. As soon as pressure began from right hon. and hon. Gentlemen behind him, he got pushed in the opposite direction. He has clearly been under further pressure and the Board of Inland Revenue has protested to him that the kind of conclusion he reached will lead to the conclusion generally that tax dodgers can get away with it without the fear of retrospective legislation. Therefore, the right hon. Gentleman has swung in another direction and has told us that he is not afraid of retrospective legislation.
I want to ask the Chancellor this question. He has said to us that where there is a clear warning there is a case for retrospective legislation, although we should have a bias against it. He spoke in almost the same words as were used by my hon. Friend the Member for Islington, East (Mr. E. Fletcher) in quoting two Conservative Chancellors before the war. Where there was a warning this would be justified. Would the right hon. Gentleman tell the Committee now whether there was not a warning in 1955, or whether he is criticising the inadequacy and bad drafting of the warning given after very full consideration by the then Financial Secretary and the then Economic Secretary? If the right hon. Gentleman thinks that one is justified in acting on a warning, was it the warning that was inadequate and carelessly drafted, or is he running away from the conclusions and the consequences of that warning?

Mr. Amory: What I have said today is completely in line with my utterance on the last two occasions, on 21st April and 29th April.
As to the right hon. Gentleman's question about the warning, I have said already that a warning was given. I called attention to it. What I am saying is that different views are held as to the adequacy of the nature of that warning in a matter like this. I want to repeat what I said earlier, that whether a warning has been given or not is one of the elements to be weighed up; but there are other factors which have to be weighed up and each case must be taken on its merits. A decision has to be reached, in those circumstances, on where the balance of fairness lies.
I said in my previous statement that I found it difficult to make up my mind on this matter. I owned to the Committee that after listening to arguments I had changed my mind and decided that the balance of advantage which I thought leant just in one
direction now leans in the other. That is the explanation of my decision.

Mr. Wilson: A weathercock always finds it difficult to make up its mind. It is always right in reflecting the direction and pressure of the winds that blow upon it.
It is quite clear that the Chancellor has not told us whether he was prepared to stand up for the interests of the Revenue and the general taxpayer against these pressures. Taking even the Chancellor's words at their face value, he said that there was some doubt about the extent of the warnings of those Ministers. It is a very serious reflection on those Ministers that they could not choose their words more carefully at that time.
Even if we accept the Chancellor's words, which, frankly, I do not, even if we accept his argument, he will agree that we are now trying to deal with three different kinds of dividend stripping. Accepting the Chancellor's argument on one of those, there is some doubt as to whether the warning really covered it. On the other two, which are related to the 1955 Act, there can be no doubt that the warning covered them. Why will the Chancellor not say that he was prepared to have retrospective legislation for those parts of the practices which were clearly dealt with by that warning?

Mr. Amory: That still leaves the nature of the warning, apart from the specific content of the warning, undealt with.

Mr. G. R. Mitchison: May I ask a question? The Chancellor appreciates that this is a very serious matter, not merely in relation to this case. I suggest to him that the Committee is entitled to a clear answer to one question. Is it his considered opinion that the warnings given in 1955 were inadequate either because their terms were obscure or insufficient, or because they were only given in the House of Commons?

Mr. Amory: In answer to the first part of the hon. and learned Gentleman's question, I have on an earlier occasion said that there were some doubts as to whether the terms of the warnings were wide enough to cover all the new forms of dividend stripping which have arisen since then.
As to the second part of the question, as I have said earlier, it is a matter on which different views are held as to whether a statement in the House by the responsible Minister on a particular case shall constitute a sufficiently valid warning to all those who may be concerned in decisions in relation to commercial activities for all time.

Mr. Mitchison: If I may say so, that is not an answer to the question that I asked. It seems to me that in a matter of this sort, where the right hon. Gentleman's political honesty and his ability to maintain his own opinions against pressure from other people are at stake, he ought to tell the Committee what is his opinion—his considered opinion—on the two points I put to him. I will repeat them. Were those warnings inadequate in terms, or were they inadequate because they were only delivered in this House? It is the right hon. Gentleman's opinion we want, not whether there is any doubt about it.

Mr. Amory: I have given my opinion that at the time of the Budget I considered that the warnings given were adequate, but after listening to the arguments I came to the other conclusion. I have said that for the third time.

Mr. Wilson: The right hon. Gentleman has failed to answer the question for the third time. It is important to put this question. This is an entirely new point about the inadequacy of a ministerial


warning in the House. In his considered statement which he gave at the beginning of the debate—and it was very helpful of him to intervene so early in the debate—the Chancellor made it very clear that it was perfectly appropriate to introduce retrospective legislation where there had been a Ministerial warning.
Then the right hon. Gentleman used mysterious words about the inadequacy, not of the words of the warning, but of the nature of the warning. My hon. Friend the Member for Nuneaton (Mr. Bowles) asked him what kind of nature of Ministerial warning is necessary if a considered Ministerial statement, in Answer to a Question, as it was in 1955, is not adequate.
Does the right hon. Gentleman say that there must be another warning, for instance, one circulated in the London Gazette? Must there be something which counts for more than a statement in the House of Commons? If the Chancellor thinks that there is any doubt about the nature of the warning—I am not concerned with its coverage or its definition—will he say what kind of warning would satisfy his requirements?

Mr. Amory: This is one of the elements to which I referred. My decision was reached here in the light of a number of different factors. That was one of the factors on which I have still some doubt, namely, whether it is reasonable to expect everyone concerned in future decisions on commercial matters like this to be conscious—by itself and without anything else—about what a Minister said in the House of Commons on a particular day.

Mr. John Diamond: I am sure that hon. Members on this side of the Committee consider the answer given by the Chancellor most unsatisfactory. The whole Committee ought to consider the whole answer most unsatisfactory in relation to the last and the newest doubt of the Chancellor whether the House of Commons is the place in which to give a warning to tax tricksters, to use the Financial Secretary's term. Is the House of Commons the proper place in which to give notice to people whose sole concern is to make a business out of tax avoidance—reading HANSARD page by page, line by line, and comma by comma—and devoting their whole lives and a considerable fortune to doing it?

Mr. Hale: Perhaps the Chancellor thinks that the warning should be given by a life peer in another place.

Mr. Diamond: That the right hon. Gentleman should be driven to rely even on the smallest measure on those considerations has taken something off the stature of the Chancellor. That is the last thing that I wanted to happen. I want the Chancellor to realise that this is a difficult matter. In his complete honesty, he has confessed to us—he is a man of the utmost integrity—his difficulty in making a decision when the arguments seemed to be equally balanced.
Surely the House of Commons is the appropriate place for us to discuss arguments of that kind and to help the right hon. Gentleman to make up his mind. He should have listened to us here; I hope that he will still listen to us. He has confessed that the arguments were equally balanced. I hope that he will allow us the opportunity of swaying his mind in what we think is the right direction.
It is difficult to conceive of a more important function for the House of Commons than that of raising taxation which affects the liberties of practically every subject, and it is difficult to think of any Amendment which could go more to the root of the fairness and justice of the methods by which we raise taxation than that which is before the Committee. We are concerned with seeing that the burden of taxation is shared fairly among taxpayers, that every taxpayer realises that he is called upon to pay his fair share—in simpler terms his fair whack—and that he has not to shoulder an additional burden because one particular class of taxpayer is notoriously getting away with less. I should have thought that that was absolutely fundamental to our responsibility.
I think the Chancellor would agree that it is essential that there should be a close relationship between the Revenue and the taxpayer in the collection of these millions of pounds of revenue, so that the machinery should work as smoothly as possible. The only reason why we are able, by and large, to collect such a high rate of taxation—higher than almost anywhere else in the world—is because we place a high value upon that relationship.
4.45 p.m.
That relationship is utterly destroyed as soon as it is seen that there is a category of taxpayer completely avoiding its share of the burden and if, on top of that, it is seen, as it is now regrettably seen unless the Chancellor will change his mind once more, that the representative of the Revenue and of the community comes down in favour of the richest taxpayer and not in favour of the community, when he has a doubt in his own mind. The Chancellor is here to represent the whole of the community of taxpayers and not the richest taxpayers.
That is exactly what the right hon. Gentleman has done on this occasion. At an earlier stage he came down in favour of the taxpayers as a whole and of the principle that we should all pay our fair share of taxation. He has withdrawn, temporarily I hope, from that position, because of pressure put upon him by hon. Gentlemen who have the weakest possible case.
In Finance Acts we shall always be concerned with tax avoidance. There will always be some persons attempting to find a way through the provisions of a Finance Act, and will always be provisions to close loopholes. The very fact that we must have a Finance Act once a year which
includes provisions for closing loopholes shows how continually we are faced with this problem. What is the best method of closing loopholes? I am delighted that the Chancellor of the Exchequer dealt with this point. He considered our Amendments, other than the one about the warning, and rejected them. I am in agreement with him and not necessarily with all hon. Members on this side of the Committee, in rejecting those other Amendments. They are bad.
One is left with only this method of dealing with the fact that no human being, including every draftsman in the country employed by the Inland Revenue, can foresee every possible complexity of our economic life, or can turn the wishes of the House of Commons into effective provisions legally drafted to deal with every economic possibility. The nature of our economic life is far too complex for any number of lawyers to provide for it. One cannot foresee the unforeseeable, or what events will later on put into individual minds the possibility of

deriving beneficial results from taxation. Because of that complexity, it is impossible for any human being to provide for all the different transactions among tens of thousands of people over the years.
Knowledge of these transactions comes far too late to the Government Front Bench. It comes very late to the Inland Revenue, as I shall illustrate. At present, the Government Front Bench have no other method of dealing with this problem of loopholes than a Ministerial warning given under proper safeguards. There is no other method of dealing with the problem.
In 1955, for reasons I need not repeat, there happened to be two Finance Acts. I was not here then. We had a General Election, at which I was unsuccessful, and it immediately preceded the second Finance Act. The then Chancellor, the present Home Secretary, took advantage of the fact that there was an interim Finance Act to introduce legislation devised against dividend stripping. He said he knew about it then although he had not known about it at the time of the earlier Finance Act, in April of that year. These methods of dividend stripping had been common talk in the City of London for two years before that. For two years it had been a matter of common talk, not quietly discussed between experts on a particular problem, but coffee house talk.
I accept, as I must accept in this House, the statement that the Home Secretary then made that he was not aware, as Chancellor of the Exchequer, of the wide existence of this method of tax avoidance until October, 1955. I accept it and it is in support of the argument I am making that until a whole host of things have taken place and this original tax avoidance device has been perpetrated, no one knows on the Front Bench. One does not know until it reaches the Inland Revenue when a repayment claim for tax evasion is being made. It may be made years after the event.
One of the reasons taken into account in deciding the timing of the repayment claim is whether, if it is made very early, the dodge will be stopped in the next Finance Act. Therefore, if one lets it run a bit one is secure and is accumulating more and more years of tax benefit to the dodger and disadvantage to the rest of the community by letting it run.


It is inevitable, therefore, for these two reasons—the complexity of our economic and business life and the fact that the information, on the word of the Home Secretary, reaches the Chancellor too late—that there will always be the problem of closing loopholes and we shall not deal with it satisfactorily other than by the method of Ministerial warning.
That warning was given with authority and in the most precise terms. It was repeated on three occasions and it was a warning which struck at dividend stripping and everything to do with dividend stripping. It was not a warning directed against a method of dividend stripping, but directed against a result, the tax benefit derived from dividend stripping.
The essential thing was two companies, a company rich in resources and a second company married to it in one form or another, as the Financial Secretary told us so clearly on Second Reading. There would be benefit to the dividend stripper and loss to the rest of the community. The rest of the community would have to bear an additional burden over and above that which it would have been called upon to bear had the dividend stripper, in common with the rest of the community, borne his fair share of tax.
The warning given was utterly precise in relation to this Amendment. If this
is not the very thing which is 100 per cent. within the terms of that warning, when is a warning to be used and for what was that warning used? I cannot imagine any case in which the position was more precise and more exact. I can imagine no case where a warning has dealt more specifically with what was in the mind of Parliament. Everyone knew what was involved and the very thing against which the warning was made came off. Today, the Chancellor said he did not dismiss from his mind the giving of Ministerial warning in proper circumstances. I must ask what occasion he can conceive of, if not the one we are considering, to give effect to the Ministerial warning.
If the Chancellor takes the view of the right hon. Member for Blackpool, North (Sir T. Low) he takes the view that a Ministerial warning is not an appropriate measure in any event. I think that that was the view expressed by the right hon. Member in a speech some time ago. If

the Chancellor took that view one could understand that he would dismiss the Ministerial warning altogether, but for the purpose of the tax collecting machine he dare not jeopardise the use of the one weapon which is of such vital importance. He dare not throw it away. It is the one thing which is of the greatest possible help in stopping tax avoidance. Because he dare not throw it away, he says that he has not completely rejected it from his mind.
I must, therefore, ask someone on the Front Bench to say what circumstances would justify a Ministerial warning. What circumstances could be more appropriate than the occasion when the warning was given three times with authority, directed specifically against dividend stripping; and we are dealing with the very thing which was warned against? I will not repeat the words of the warning. They have been dealt with by my hon. Friend the Member for Islington, East (Mr. E. Fletcher). Nor is it necessary to go into the general principle of retrospective taxation, because my hon. Friend has dealt with that so effectively, but I will add a further reason which I find very potent.
One notices that the first argument put forward by all those who speak against retrospective taxation of any kind is that one must not be made a criminal in the eyes of the law for doing something which was not criminal at the time it was done. There is no question of criminality at all. All we are considering in this Amendment is whether the wishes of Parliament, which were expressed at the time, shall be given effect. There is nothing retrospective about that. We are only deciding whether or not in this case, where Parliament omitted to dot the i's and cross the t's with sufficient precision, those who avoided tax are to be called upon to share in the burden of taxation which, having read the warning, they feared they would have to share.
All the dividend strippers must be laughing up their sleeves at the moment. They knew full well of this warning. They knew full well they were taking a chance on it. They realised that this is a case where one nets a profit fast. It is not a scheme which would be worth while having a five or ten years' run. On a dividend strip the profit is netted immediately, it can be done in 48 hours.


They knew this was the case and that unless the Chancellor supported the warning he would not catch them. A man who does a deal like this cannot be caught by a subsequent Finance Act, brought in six to twelve months later, which is not retrospective in this sense.
It is extremely regrettable that by this action the Chancellor has not only given cause for laughter among all the dividend strippers who will now make a profit which they did not expect—they feared they would make a much smaller one—but he has dealt a blow against all those who have done everything they could to put tax avoidance upon the good ground that Parliament has said that there would be retrospection if this thing happened, and it has happened.
It is regrettable in the extreme that the Chancellor, by his change of mind in this way, is prejudicing enormously the ability of the Inland Revenue to function on our behalf and prejudicing enormously that other section of the community without whom the Inland Revenue could not work—the accountancy profession.

5.0 p.m.

Mr. Pickthorn: If I heard the hon. Member aright, he said that Parliament had said that in such and such circumstances there would be retrospection. If I did not hear him correctly, I hope that he will tell me so now. If I did, does he think that a Ministerial assurance amounts to Parliament saying something with legislative effect?

Mr. Diamond: The hon. Member is quite right; I used the words "Parliament has said". I did so deliberately.
Although it was only a Minister saying it, with the authority of the Chancellor of the Exchequer, when that happens and when it goes completely unchallenged, I think that it is right in terms of the average public outside to say that "Parliament has said it". [HON. MEMBERS: "No".] This is an extraordinary state of affairs. Apparently some back benchers are disowning their own Government. I thought that I was being extremely courteous to every back bencher by including them all in support of the Chancellor.
I thought that the Committee would be pleased that I had included both sides of it in support of the Chancellor against

tax dodging. I thought that that was the general sentiment of the Committee and I am surprised to find anybody objecting to it. I was on a very narrow point when I used the word "Parliament" instead of "Chancellor of the Exchequer".

Mr. John Arbuthnot: The hon. Member seems to have suggested that if a Minister makes a statement, and nobody on either side of the House objects, that is the equivalent of Parliament saying it. That seems to me to be entirely wrong.

Mr. Diamond: I am suggesting that in the circumstances of this case, in which the Committee was debating the Finance Bill (No. 2), 1955, in which provisions against tax avoidance and dividend stripping were being considered, in which the right hon. Gentleman speaking for the Opposition at the time asked questions of the right hon. Gentleman speaking for the Government at that stage, in which questions and answers were asked and given in that way and in which the approval of the Opposition was obviously given as well as the tacit approval of the Committee, I am correct in what I said. It is no good hon. Members opposite trying to wriggle out of it now. They did not wriggle out of it then. The said not one word then.
Anyone should realise that a fair way of stating the position is that hon. Members supporting the Government at that time gave support to this principle. Do they not give support to it now? They say that they are in favour of dividend stripping, because the Clause is against dividend stripping and the only point involved is the date on which the provisions shall take effect.
The right hon. Member for Blackpool, North, for whom we have great respect, said on a previous occasion that he was wholly against retrospective fiscal legislation. He was in the Chamber last night. Last night, while I was out of the Chamber for those few minutes, the Chancellor announced a measure of retrospective fiscal legislation; he said that the initial allowances would be increased from the 25 per cent. laid down in the Finance Bill and in the Budget to 30 per cent. He said that the date from which this would become effective would be the date of the Budget. That would be at least two months before anybody had the slightest idea that these allowances would be raised.
The right hon. Member for Blackpool made a speech last night which I read in HANSARD. Assuming it to be correctly reported, he did not say one word objecting to this benefit to the taxpayer on the ground that it was retrospective. This happened only last night. I do not know the amount involved; I think it was £23 million or something of that order, but I shall be corrected if I am wrong. This amount was given to a body of taxpayers restrospectively, with a minimum of two months and probably three months. The right hon. Member for Blackpool, North did not object in the slightest. Does he object now? Or is it his view that retrospective fiscal legislation should work one way only?

Mr. William Shepherd: Is the hon. Member seriously suggesting to the Committee that he would put a benefit to the taxpayer in the same category as a penalty? If he is, then he is pronouncing something which I think is unacceptable to those who try to take a reasonable view of the matter.

Mr. Diamond: I am grateful for the intervention. The hon. Member has stated what I suspected was the view held—honestly and sincerely—by many hon. Members opposite. It is that we can have retrospective legislation only if it is retrospective in favour of a category of taxpayers and not if it is to the prejudice of a category of taxpayers. In that case, I do not know why hon. Members opposite object to the general principle of retrospective legislation. If that general principle is now accepted, I can turn immediately to the detail of this case.
The Chancellor said that he doubts whether the warning was wide enough to deal with the new methods of dividend stripping which have since come to his notice. I want to underline the fact that they may be new to the Chancellor and may have been new to the House in the autumn of 1955, but in fact they were not new because they had been in existence and had been practised. There was nothing new about them then. The marriage of the rich company with the poor company is as old as the hills, as is the dividend stripping which results from it.
By curious chance, I found it detailed in a book of nursery rhymes which I

happened to find in my nursery only this morning. In order to avoid getting the words wrong, I noted them down. They concern the usual case where the boy seeks the girl—that is, the loss company seeks the company with rich reserves. Having put an advertisement in a column of the Financial Times, or a similar paper, seeking an interview with such a loss company, the following wooing goes on, in which he says to her:
Where are you going to, my pretty maid?
Where are you going to, my pretty maid?
A'milking the Revenue, sir, she says,
A'milking the Revenue, sir, she says.
What is your fortune, my pretty maid?
What is your fortune my pretty maid?
My loss is my fortune, sir, she says,
My loss is my fortune, sir, she says.
Then I'll go with you my pretty maid,
And I'll strip off my dividend, my pretty maid.
But not till you've married me, sir, she says,
Not till you've married me, sir, she says.
They were duly married and invited all their nursery rhyme friends to the wedding. Along came Simple Simon—I am referring to the nursery rhyme characters—and gave them a cheque in repayment of tax for a cool half-million pounds, and they lived on the fat of the land ever after.
There is nothing new about the marriage of two companies in order to achieve the circumstances in which dividend stripping can take place. May I read the title of this Clause and then the title of the Section in the Finance Act, 1955, which this Clause seeks to amend? This Clause is headed,
Purchases of shares by financial concerns and persons exempted from tax".
That is the general purpose of the Clause. The relevant Section in the 1955 Act reads,
Purchase of shares by financial concerns and persons exempted from tax".
Word for word, it is exactly the same. As the right hon. Gentleman knows, and as he virtually admitted in his speech, we are dealing with exactly the same things as that with which we were dealing in the 1955 Act.
Certain provisions, as the Financial Secretary made clear in his opening speech on this Finance Bill, have been overcome by methods which the hon. and learned Gentleman called a "mere artificiality," or words of that kind. On


12th May, the hon. and learned Gentleman said:
The first device is a sheer technicality…This is a sort of dividend stripping by proxy and Clause 16 (3) is intended to close that gap. The second form tries to get round the requirements of the 1955 legislation…The House will see that in Clause 16 (2) a formula has been devised to deal with that case."—[OFFICIAL REPORT, 12th May, 1958; Vol 588, c, 42.]
What we are doing in this Clause is exactly what was warned against and what it was intended to achieve when that first Clause was passed by the House. What we are doing is giving effect to the warning that if those provisions were circumvented retrospective legislation would be introduced. We are being extremely diffident. We are not leaning as far in the direction of financial rectitude as the Chancellor did in his Budget speech. In that speech the right hon. Gentleman agreed to make these provisions retrospective to October. We are only seeking to make them retrospective to September, which was the date when the final and most cogent warning was given.
We hold the view that where the warning has been given and where it is clearly understood what it is against, it is perfectly proper to introduce legislation to give effect to it, but not beyond the date of the warning. Then every taxpayer knows precisely where he is and no one is put in any difficulty of any kind. I think we have dealt completely with the question of anything new being involved in the Clause. There is no such thing.
Apparently, all the Government back benchers have withdrawn from the view that retrospective fiscal legislation is bad in all circumstances. The Chancellor no longer supports the view. He says that he holds open the possibility that, in appropriate circumstances, we would have retrospective fiscal legislation. I hope, therefore, that before we finish this debate the right hon. Gentleman is going to say that he will give the matter further consideration and change his mind.
I am in a great difficulty. What of the existing methods of dividend stripping which avoid the 1958 Finance Bill provisions? What is the Chancellor going to do about those? There are in existence at the moment methods of avoiding the provisions in this Finance Bill. What is

the right hon. Gentleman going to do about those, because he does not know about them as they have not yet reached his Department?

Mr. Pickthorn: Why does not the hon. Gentleman send details of them to the Treasury?

Mr. Diamond: Because I am one member of the public and know a millionth at most of what other members of the public know. Whatever information I could give the Treasury I would most willingly give, but not in public. The hon. Member for Carlton (Mr. Pickthorn) pays me a great compliment which I do not deserve in believing that I know everything that everyone else knows. That is not so. It would still leave the problem of a host of other things which all my hon. Friends know on these matters.

Mr. Hale: Surely the duty of a Member of Parliament, if he knows of some method of tax avoidance, is to wait for a Finance Bill and to put down an Amendment to deal with it. That is what we have done, not only as regards the Amendment which we are now discussing, but also as regards the Amendment which stands in my name on page 2,950 of the Notice Paper.

Mr. Diamond: I say most earnestly to the Chancellor, what are we going to do for the future? There will be more avoidance of the current dividend stripping provisions. However much we alter these provisions, they will still be avoided. Is the Chancellor satisfied to wait for two or three years until evidence of this reaches his attention and then to take action to deal with the matter—

Mr. Denis Howell: He will not be here.

5.15 p.m.

Mr. Diamond: —or is he prepared to say that this is the sort of thing concerning which a Ministerial warning should be given and prepared to give a warning now as Chancellor of the Exchequer against this practice in what are the words he thinks appropriate in this place—if he thinks this place is good enough in which to give that warning—together with whatever further advertisement in The Times and wherever else he wants the warning to be published—

Mr. Ede: The Financial Times.

Mr. Diamond: —and to include it in the list of concessions which the Inland Revenue circulate to interested parties? Is the Chancellor prepared to give a warning now, of whatever kind he likes, to apply to the future? Is he prepared to give us some reason to think that he is on the side of the taxpayer and not of the tax dodger? If the right hon. Gentleman is not prepared to do that, how are we to deal with these matters in the future? If the Chancellor is not prepared to do this, then he should rest the issue for all time.
The Chancellor has given the greatest stimulus to tax avoidance by introducing retrospection and then running away from it and changing his mind. I assure the right hon. Gentleman that to have loved financial rectitude once for a short time and to have lost is much worse than never to have loved it at all. It will give a stimulus in all the wrong sorts of quarters which we have been discussing for some time.
I should have thought that in the general atmosphere of the country today the Chancellor would not wish every civil servant, bus driver and factory worker to feel that he is paying more than his fair share of tax with the full knowledge and support of the Chancellor of the time. I should be utterly surprised if he, the Minister for the Inland Revenue, is going to let his own Department down and is going to be known as the Chancellor who supports the artful dodger.

Sir Alexander Spearman: I do not wish to enter into the arguments for and against retrospective legislation, however strong my view may be on the matter. I only want to speak very briefly indeed about the comments which have been made on the Chancellor's decision. It seems to me that hon. Gentlemen opposite are being very difficult to please. I can well understand their entirely disagreeing with the Chancellor's decision and criticising it as hard as they can. But I cannot quite understand why the right hon. Member for Huyton (Mr. H. Wilson) can describe my right hon. Friend as a weathercock when he listens to arguments and is influenced by them and as being rigid

and unhelpful and as prolonging proceedings unnecessarily in listening to arguments which do not change his mind. That is what we were frequently told last week.

Mr. E. Fernyhough: Will the hon. Gentleman tell us when the Chancellor listened to anything in the House which caused him to change his mind on the matter?

Sir A. Spearman: Yes. Many speeches were made in the House on this matter.

Mr. Fernyhough: In the 1922 Committee.

Sir A. Spearman: I am not conscious of any speeches being made there which were directed to my right hon. Friend the Chancellor. I only remember the speeches made in the House.

Mr. R. T. Paget: He could not have been convinced by those speeches.

Sir A. Spearman: That is a matter of opinion. He may have listened to the hon. and learned Gentleman and not been convinced by his arguments in the very prolific speech which he made the other day.
My right hon. Friend said that the arguments were very nearly divided and that he found it particularly difficult to make a decision. I understand it was not the case that he thought the matter was either merely black or merely white. He found it particularly difficult on this occasion, and it seems to me the occasion when a man with that opinion should be open to hearing arguments and being influenced by them. Indeed, I have always thought that obstinacy and refusal to listen is not the sign of strength but of weakness and that willingness to change one's mind is a sign of strength and wisdom. I am very glad that my right hon. Friend has once again shown that he holds these two qualities in such a very high degree.

Mr. J. Grimond: I, too, do not want to delay the Committee long. I sympathise with what the hon. Member for Scarborough and Whitby (Sir A. Spearman) said about the Chancellor's dilemma. He is always apt to be called obstinate, rigid and stiff-necked one day and weak-kneed the next day. That is a hazard that Chancellors


face. I am glad that on this occasion the right hon. Gentleman has changed his mind.
On principle, I am against retrospection which operates against the taxpayer. Our law is sufficiently uncertain already without introducing a new hazard that it may be changed retrospectively. In addition, there is always a danger in these cases that if the taxpayer is unpopular though rich it is considered right to do things to him to which, in the case of a more popular member of the community, we might object. I am glad the Chancellor said that it could be justified only in very unusual circumstances. I agree with him.
I quite understand the argument that our taxation system is now so complicated that it is becoming extremely difficult to legislate about it. That is a devastating criticism, not of our economic but of our taxation system. It badly needs revision and reduction.
The point on which I want to say a word or two is the question of warning. I have said that I am against retrospection on principle, whether a warning is given or not. It seems, however, that there is some consensus of opinion in the Committee that a warning is important. The Chancellor himself led us to suppose that had he been convinced that a precise warning had been given on this point it would have influenced his mind strongly and he might have carried through the retrospective legislation which he originally suggested. I also appreciate that these tax matters are not criminal matters but they are, of course, matters which may have serious consequences for certain people. We should, therefore, investigate the whole principle of the warning.
The Chancellor's argument is that the warning was imprecise. Surely, the whole point of giving a warning is that the legislation involved would have to be so tortuous, detailed and lengthy that it was almost impossible to enact it and that it might harm a whole lot of innocent people whom one does not want to catch in that particular taxation net. Therefore, if there is any value in a warning, I should have thought that it was just that a rather imprecise warning could be given in general terms without going into details of exactly what is

liable to taxation and what is not. Having looked at the warnings which have been given, I am bound to agree with the hon. Member for Gloucester (Mr. Diamond) that they were specifically aimed at the effect of dividend stripping and that, if any warning is fair, this was a reasonably fair warning.
I take the view that no warning is fair. If, however, we are to have the principle of warning at all, I do not see how it is of any value if it must be as precise as legislation. If we can be totally precise about this, why not legislate?

Mr. Diamond: Exactly.

Mr. Grimond: If we cannot legislate, those who are in favour of warnings say that the warning is given about one's intention. It is directed at the end of the process one wants to stop; that is, some gain through evasion of a tax. As far as I can see, this warning was reasonably intelligible and accurate if one is in favour of warnings at all.
There are all sorts of objections to warnings. They make our position still more uncertain. They mean that we have a new form of direction which is not the law but which may ultimately affect law. It surely is extremely important that we should have some principles at least upon which warnings are to be given. Is the Chancellor saying that he will give a warning against dividend stripping in its new forms? He has been asked this question by the hon. Member for Gloucester. He says that there are methods of doing this which are still being practised. Is he saying that it is right if he says that he is against this method of minimising taxation, whether done in a trading company or a finance company, or is he saying that a warning must be absolutely precise? If a warning must be precise, he should introduce legislation, because I see no difficulty, if he is enabled to give a precise warning, why he should not bring precise legislation before us.
I do not join with the hon. Member for Gloucester in saying that if the Chancellor makes a statement in the House and we do not get up and disagree with him we are all taken to agree with him. This is a dangerous principle and, if


extended, it would involve us in sitting here day and night, because one can never tell what Ministers will say.

Mr. Hale: They rarely know themselves.

Mr. Grimond: I usually disagree not only with most of what the Government say, but with practically everything that the Opposition says too.

Mr. Mitchison: The hon. Member has mentioned the serious consequences of retrospective legislation. May I take it that what he has in mind is the repayment by certain dividend strippers of sums that they have received from the revenue?

Mr. Grimond: No; the hon. and learned Member may not take that. I was making a general point that taxation at its present level may have extremely serious consequences for people of whom we may approve or disapprove. Morals do not enter into this. It is better to keep morals out of these taxation method arguments. What I am saying is that, as a general rule nowadays, with taxation at its present height, the introduction of retrospective taxation legislation may have extremely serious consequences.

Mr. Geoffrey Stevens: I should like for a moment to echo the concluding thoughts of the hon. Member for Orkney and Shetland (Mr. Grimond). Some of us from time to time complain of all-night sittings, tedious debates and one thing and another. I can imagine that those who are at present the Government Whips and those who, in the future, hope to be Government Whips—[Interruption.]—they may come from this side of the Committee as well as from the other side—listened with the greatest possible interest to the speech of the hon. Member for Gloucester (Mr. Diamond) and less so to the speech of the hon. Member for Islington, East (Mr. E. Fletcher), who, it seemed to me, was more objective in his approach to the problem.
The picture which emerges very clearly from the speech of the hon. Member for Islington, East is of a Ministerial warning at 3.30 p.m. and that then Parliament has spoken. There is no question of debate in the House, no question of Second Reading, Committee stage or any

other place, but just a Ministerial warning and Parliament has spoken. That is what the hon. Member said.
Has the hon. Member followed that through to its logical conclusion? Let us imagine that a Ministerial warning in precise and specific terms is given. The years roll by and no legislation reflecting that warning goes through the proper constitutional stages. What is the position then? Has the law of the land been changed or has it not? Can another Chancellor or Minister come along in five, ten or twenty years' time and make his legislation retrospective to the date of the Ministerial warning? This is a moonbeam from the lesser lunacy.

Mr. Diamond: The hon. Member is, of course, exaggerating one point which I made. I hope he will bear in mind that he has already voted in favour of retrospective legislation. If I am not wrong, one of the Budget Resolutions which was submitted to the House and was voted upon by all Government supporters—I assume that the hon. Member was present for the Budget speech—was a Resolution dealing with the ability to exact taxation retrospectively. Indeed, Mr. Hynd, you would not have permitted discussion of the Amendment had it not been so.

Mr. Stevens: I shall certainly come to that point. It is, however, within the recollection of the Committee whether the hon. Member did or did not indicate the effect of Ministerial warnings. One of my hon. Friends challenged him when he said that a Ministerial warning had the effect that "Parliament has said". "Parliament has said" can mean only one thing: that is, that the proposal concerned has gone through all the stages of Parliament, which includes not only this place but another place also. The hon. Member has been a Member of the Committee and of the House long enough to know that.
I return straight away to retrospective legislation. I am very glad that my right hon. Friend did not yield to the most interesting and persuasive arguments deployed by the hon. Member for Islington, East, who introduced the Amendment. He was, as I thought, reasonably objective in his approach to this problem, and he deployed amongst his arguments the difference between various forms of retrospective legislation.
5.30 p.m.
To say that we on these benches object to retrospective legislation as a whole is quite untrue. We have never said so, or meant to do so. The hon. Gentleman looks surprised. It is true that he is not one of us, but there are a number of hon. Members of the Committee who would not be here at all if it were not for retrospective legislation—those who sat here for many years under a disqualification, thereby running the risk of incurring very substantial damages—and one piece of retrospective legislation was a Bill of idemnity to prevent them from becoming bankrupt and thus ineligible to sit in this House.
Of course, we do not object in principle to all forms of retrospective legislation, and the hon. Member for Islington, East made that perfectly plain. What we do object to is retrospective penal legislation and retrospective legislation inflicting additional taxation, but certainly not, as in the case of the initial allowances, for a month or two, where the position is entirely different.
I am sorry that the hon. Member for Islington, East is not in his place at the moment, because in citing precedents for retrospective legislation he was guilty of a very sad error. It is of importance, because he quoted it to us as an everyday example for most of us, and, indeed, one very much in our minds at the present moment. He said that those of us who pay Income Tax will pay Income Tax at a different rate next year on our current year's income, and that this is therefore retrospective legislation. Of course, it is nothing of the kind, and I am quite sure that the hon. Member far Gloucester, with his great experience in these things, knows that perfectly well.
It is perfectly true that the Schedule D assessments for Income Tax are based upon the income of the preceding year, but the demand for tax is made in respect of the current year, and that that is so is shown by the cessation provisions, where the assessments for the last two years of a business, the profits of which are assessed under Schedule D, are adjusted to the actual and there is similar compensation at the beginning of a business. That was a bad precedent. It was quite faulty, and, perhaps for that reason, having taken a faulty precedent,

the hon. Gentleman in his objective argument came to the wrong conclusion.

Mr. Hale: I have been listening with the greatest attention to the hon. Member. Will he permit me to ask him to assume that we reject the argument of the Leader of the Liberal Party that we should take all morals out of financial policy and should have a financial policy to balance the claims of the extremely poor against those of the rich and so on? The hon. Gentleman says he does not mind retrospection in financial legislation so long as it gives something to somebody, but, surely, if we are making a concession to a limited class, we impose a burden on all other taxpayers, and we are, therefore, effecting retrospectively an additional burden on the great mass of taxpayers, and very often on the poorest of them?

Mr. Stevens: I am bound to say that there is something in that argument, and I would not like to try to contradict it off-hand. I think we could have a most interesting debate upon it. I do not quite side with the hon. Member for Orkney and Shetland in all he said. I said, not quite the opposite, but that I object in principle to retrospective penal legislation or retrospective taxation. That is not going the whole way with the hon. Gentleman, but some little way.
The hon. Member for Islington, East took us on a very interesting historical journey, in the course of which the picture came clearly before us of the manner in which retrospective penal legislation or retrospective taxation is gradually disappearing from the British political picture. There is no question about that at all. He quoted instances from the sixteenth century, and came more up-to-date with Sir John Simon. I think that we have moved still further in the direction which I want to travel in the last twenty years.
There is, however, a most serious difficulty in connection with suggesting that ministerial warnings must have legislative effect. The difficulty is that of the precise interpretation of the ministerial warning. Hon. and right hon. Gentlemen opposite cast some doubt on that. They say that the warning of 11th December, 1955, by the then Financial Secretary, was in clear and precise terms, and that there was no difficulty about that at all. I turn to this Finance Bill, which has 38


Clauses in it, and I know that one of the main objections of the Opposition is not that there was too much in the Bill, but that there was so little in it.
To many of us, these Clauses are almost unintelligible and one needs an interpreter to understand them, but yet they are necessary to give legislative effect to a warning. I think it is quite impossible to contemplate for a moment that we can put Ministerial warnings on the same plane as legislation. Unless what I have said is true, we should not have all these long Bills and very extensive debates on them. In this particular instance, I am abundantly satisfied that my right hon. Friend the Chancellor is right in giving practical effect to his doubt and to mine, and I hope the Committee will reject the Amendment.

Mr. Paget: I have listened with very great interest to two most informative speeches by my hon. Friends, but I cannot for the life of me discover what we on this side of the Committee have to grumble about. I really cannot follow it.
As I understand it, as a result of undertakings which took place between
1955 and 1958 large ascertained sums
have been paid by the Treasury to dividend strippers. That money is there; it is known and it is ascertained. Now, there is a difference between the two sides of the Committee. In this respect, the Chancellor says that he is against retrospective legislation. We are in favour of retrospective legislation. When we come to our first Budget, since we are in favour of retrospective legislation, what on earth is there to prevent us getting this money back? Here is the Chancellor leaving this delightful plum ripening at his rate of interest of 7 per cent. on the tree for us to pluck, and we are grumbling about it. It seems to me so ungrateful.

Sir T. Low: The hon. and learned Member is making a great statement of policy on behalf of his party, which is directly contrary to the statement of policy made by his right hon. Friend the Member for Huyton (Mr. H. Wilson) during the debate on the Second Reading of the Bill. Am I to understand from him that he now rules the financial and constitutional policies of the Labour Party, and that he regards as naught all statements from his own Front Bench?

Mr. Paget: The hon. Baronet knows me well enough to know that I speak for myself. On the other hand, it sometimes happens that there are suggestions which come from my simple mind which find favour with my party. We shall have a good look at this plum when the time comes—[HON. MEMBERS: "The Royal 'We'."]—and no doubt consider it a suitable one to pluck, but do not let us grumble at the Chancellor for leaving it
Now, I want to say something with regard to the general principle of retrospective legislation. When we impose taxation, we say that out of the money which John Smith,
or whoever it is, has he shall provide some money for the use of the community to which he belongs. I do not know whether or not that is retrospective legislation, but it is the principle of all taxation.
As for retrospective legislation in the criminal field, I stand firmly behind the great words which were used upon the occasion of the impeachment of Stafford:
First let a mark be put upon the door, and only then let he who enters die.
There was a time, when the War Crimes trials were being held, when the late Dick Stokes and I were almost the only people in the House to insist upon that principle—but to apply it to the question of revenue collection is complete nonsense. It has nothing to do with it. I am unreservedly in favour of retrospective legislation against tax dodging, and I am quite certain that that is the only way to stop it.
Hon. Members opposite do not realise how this really works.

Mr. Fernyhough: Don't they!

Mr. Stevens: The hon. Member for Gloucester does.

Mr. Paget: My hon. Friend the Member for Gloucester (Mr. Diamond), like the hon. Member for Langstone (Mr. Stevens) is an accountant and has some experience of the seamy side. So do lawyers. But the picture of the cunning financier, searching for ways of avoiding taxation, is in general a false one. What really happens is that a set of industrious and ingenious chaps think out methods of dodging taxation and then go round trying to persuade people who have got the money to adopt their ingenious methods in order that they may get a fee or commission for it. Very often they find the greatest difficulty in persuading


boards and individuals who are too lazy-minded and stupid—not necessarily too good—to think of a bright idea of this sort to do so. We have only to put into their minds the idea of retrospective legislation and the eloquence of the chaps who have thought up a good dodge will cut practically no ice.
In other words, if we build up the thought of retrospection in the background we will break the practice of the ingenious people who really do think out these tax dodges. That is why we should be quite clear about it and should say quite straightforwardly that we stand for retrospection against tax dodges, whether or not a warning has been given. Let the warning be general. People who work out these schemes know very well what they are doing—they are tax dodging; they are avoiding taxes.
We should say quite clearly, "As far as tax dodging is concerned, whether or not we have thought of a possible group in advance and given a warning about it, or whether tax dodgers have thought of something more ingenious, in a new group that we have not thought of, it will not make the slightest difference; when we find it we will legislate retrospectively." Do that, and our respectable rather stick-in-the-mud boards of directors will not be led away by the bright young chaps who invent these dodges. It will not be done, and we shall not have to legislate retrospectively in practice. The mere threat will be an adequate deterrent.

5.45 p.m.

Sir T. Low: I have already expressed my views on the undesirability of retrospective taxation legislation. I do not want to weary the Committee at length again, but I want to take up one or two of the arguments which have been put this afternoon.
The hon. and learned Member for Northampton (Mr. Paget), who spoke after me on the previous occasion, has declared, once again, his belief in wholesale retrospective legislation in taxation. That is a very odd belief, coming from one of Her Majesty's counsel. I do not want to interfere in any way with his practice, but I do not think that anybody would ever consult him on taxation law, because he would clearly not be advising them on the law but on what he thought a

Government might do in the future in the way of altering the law. It makes the conduct of our affairs extremely difficult if the poor, rich, or medium rich company or individual has to take that kind of advice before deciding what to do about the manifold transactions which require to be dealt with.

Mr. Paget: I shall certainly give them that advice. My advice will be, quite simply, "It is very ingenious, but you know what they have said about retrospection. I should not do it, because it is not worth while." That is, in fact, the advice which will be given everywhere, so long as it is made clear that the Government will never hesitate to use retrospective legislation.

Sir T. Low: The hon. and learned Member's words are seemingly rather attractive. If only it were clear to everybody exactly what tax-dodging was there might be something in his argument. If only it were clear that there was some natural law about this matter it might be possible to proceed in that way, but that is not the fact. The fact is that the taxation code of this country—and of any country—is most complicated, and we can find out what is and what is not subject to tax only by examining the Income Tax Acts, the Finance Acts and all the other codifications of taxation legislation and trying to interpret them.
The hon. Member for Gloucester (Mr. Diamond), was absolutely right to remind us that no question of criminality is involved. We keep talking about tax dodgers. I believe that it was the hon. Member for Nuneaton (Mr. Bowles) who talked about sharks, earlier, implying, perhaps, that some hon. Members were representatives of sharks.

Mr. Bowles: The Chancellor of the Exchequer said that ministerial warnings in the House were not of sufficient importance to reach the ear, and I therefore suggested that he might go to the annual dinner of these sharks and make his warnings there.

Sir T. Low: These terms of endearment which are bandied about proceed from the assumption that there is something most immoral and criminal in trying to order one's affairs so as not to pay tax, or, at any rate, to pay the lowest rate of tax. I know that that view is held


by some hon. Members, and some people outside, but it is not the law; nor is it a sensible way of trying to conduct our rather complicated affairs in our rather complicated society.
The hon. Member for Gloucester, who has a considerable knowledge of these problems—I do not know whether his knowledge covers what his hon. and learned Friend calls the seamy side—did us a service when he reminded us that there is not any taint of criminality here. Although there is no taint of criminality, it is, nevertheless, very important that the law should be certain and that people, in conducting their transactions, sometimes of a complicated character, should know whether those transactions are or are not subject to tax.
It is for that reason, the reason of certainly, that I have declared myself definitely against retrospective legislation in principle in this sphere. It is not because I am in favour of tax dodging or sharks; and that applies to my hon. Friends. The right hon. Member for Huyton (Mr. H. Wilson), who, I think, differs with some of his hon. Friends, even his hon. Friend the Member for Islington, East (Mr. E. Fletcher), on this matter, did me the kindness of saying on Second Reading:
Frankly, I respect right hon. and hon. Gentlemen opposite, like the right hon. Member for Blackpool, North (Sir T. Low), who base their arguments on the rule of law as opposed to the rule of ministerial warning. There is a great deal in the argument, with which the whole House feels a good deal of sympathy".
He went on to say:
…but I think that their argument would have been much more impressive if they had produced it in 1955, when the warning was given."—[OFFICIAL REPORT, 12th May, 1958; Vol. 588, c. 63.]
However, let us give him that point; it is a fair one to make. This is where he is at variance with what has been said on the benches behind him.
I think I have shown that my hon. Friends and I dislike retrospective legislation as much as hon. Members opposite do. I take it that the right hon. Gentleman and myself at least do start with being in agreement in principle in our dislike for retrospective legislation.

Mr. H. Wilson: At least, I agree that these forms of tax dodging must be dealt with at all costs. If the right hon.

Gentleman had time to continue to quote from my speech he would then find the conditions which I suggested would make retrospective legislation unnecessary. In the absence of those conditions there seems to be no other way of dealing with this problem.

Sir T. Low: That is a quite valid point. This is a case—and it is important—in which we are dealing, on the one hand, with the administrative needs of the Revenue in favour not only of efficiency in the Revenue, but in favour of the general body of taxpayers to have an efficient law. On the other hand, we are dealing with the interests of the individual, for whom this House has always stood in its long history. It is in balancing those two requirements that there is such great difficulty.
In principle, I come down in favour of the interests of the individual. It is not only the Liberal Party that does that. Most, if not all, of my hon. Friends do it and I know that some hon. Members opposite do it. One of them wrote in a newspaper to that effect. Although I come down in favour of the individual, I should like to make certain that the Revenue is not hamstrung in its duty by the procedure that I would enforce upon it.
The right hon. Member for Huyton suggested that it might be necessary to introduce new procedure to ensure that more
immediate action could be taken by the Revenue. That is not necessary, not because I do not want new procedure—although I should be careful about introducing it on these lines—but because I think that the existing procedure is good enough if there is a case which the Chancellor thinks ought to be brought to the attention of the House. All that has to be done is to move a Ways and Means Resolution, and if there is a glaring loophole in a Finance Bill the Chancellor can propose a Ways and Means Resolution and a one-Clause Finance Bill. From what the right hon. Gentleman has said, I think that the Chancellor would get the co-operation of the right hon. Gentlemen opposite.

Mr. Wilson: Had the Chancellor done this at any time last year he would have received our co-operation. None of the last four Chancellors in the last two and a half years has shown any ability to act


in that way, because the dividend stripping problem was brought to the attention of the Lord Privy Seal in 1954, and he did not act even in the 1955 Budget. It was not until the autumn Budget of 1955 that he did anything at all. These things have been going on for some time and none of his successors has dealt with the problem until the present Chancellor attempted to deal with it in the April Budget this year.

Sir T. Low: I have no doubt that if the right hon. Gentleman examined the history of past Chancellors on his side he could make the same point. The point I was making was that the power does exist. Whether it is used is another matter, but the right hon. Gentleman was declaring himself in principle against retrospective legislation and was saying that we could get rid of retrospective legislation if we took certain new powers. My point—I ask him to consider it with the amount of care that he always applies to these things—was that the existing procedure meets his point.

Mr. Paget: Since the tax evasion does not become known until the claim is made—and any legislation which merely dealt with the claim and not the circumstances out of which it arose would be retrospective—what is the use of using legislation?

Sir T. Low: The hon. and learned Member knows that that is the way in which law-making develops. I was dealing with the proposal put forward by his right hon. Friend the Member for Huyton. If he wants to argue it would be better to argue with his right hon. Friend about it outside the Chamber.
I have not attempted to cover the whole ground. I think that the principle of whether retrospective legislation in taxation is good or bad is a principle to which the Committee and the House of Commons should pay more attention. I believe that the right hon. Gentleman and his hon. Friends know me well enough to know that I am not raising this point to back tax dodgers. It is a principle of constitutional importance and I hope that right hon. and hon. Gentlemen on both sides will agree to consider the matter once again, and, if my hon. Friends table a Motion, perhaps agree to discuss the general question of

retrospective legislation in the sphere of taxation apart from the question of dividend stripping. It is too important to deal with now, and I hope that none of the principles laid down by both sides of the Committee will be accepted as Gospel until time immemorial.
I have strong arguments against what I call the warning doctrine, but we need not go into them. This matter requires serious thought and discussion at another time, when we shall be able to consider the constitutional aspects of it as well as its relationship in the sphere of taxation.

Mr. Fernyhough: I do not think that any hon. Member would disagree with the concluding sentences of the right hon. Member for Blackpool, North (Sir T. Low). He said that none of these people against whom the Chancellor originally intended to act has done anything criminal or immoral. But if nobody has done anything criminal or immoral, what was the right hon. Member for Saffron Walden (Mr. R. A. Butler), who is now Leader of the House, warning them about in 1955? Why do we have to warn people about their conduct if it is not either illegal or immoral? I should have thought that the citizen who leads a quite legal and quite moral life is the type of citizen that the Chancellor ought to please. According to the right hon. Member for Blackpool, North these citizens, who are neither immoral nor criminal, and who have not changed their ways, did not need the warning which was given in 1955.

6.0 p.m.

Sir Godfrey Nicholson: The President of the Board of Trade or the Minister of Agriculture may say, "I give warning that if imports of early potatoes continue at this rate I will introduce a tariff against them." That does not necessarily mean that it is immoral or criminal to import early potatoes.

Mr. Fernyhough: I have never heard a Minister of Agriculture say anything like that. If I did, perhaps I could agree with the hon. Member.

Mr. Hale: Would it be a better parallel than that suggested by the hon. Gentleman to quote the case where a


Chancellor says, "If you continue to import new potatoes, I will take all the old potatoes from you"?

Sir G. Nicholson: I am not sure that that is apt. Old potatoes are a very fattening diet.

Mr. Fernyhough: The point is that the former Chancellor but two decided in October, 1955, that certain gentlemen were evading the spirit of the law and were getting away with something to which they were not entitled. That Chancellor said that unless that practice ceased and unless those gentlemen mended their ways, retrospective legislation would be introduced to deal with them. Two and a half years later, the present Chancellor has admitted that those gentlemen have continued to evade the spirit of the law and have continued to pay less than their moral share of contributions towards the running of the State. He said that he would deal with that practice and implement the warning, and then he suddenly backed down. It is obvious that that was the result of representations made to him.
Who were the people who spoke to the Chancellor about his proposals? Was it the London busmen? I wonder whether it was Mr. Frank Cousins who said that it was wrong to introduce retrospective legislation. Could it have been the Miners' Federation, or representatives of old-age pensioners? As a matter of fact, 999 out of 1,000 people would agree with this form of retrospective legislation, because they would say that these people were given a warning in 1955 when they were evading the spirit of the law and they must not now grumble if, having ignored the warning, they have to accept the consequences.
The Chancellor was merely doing what many mothers do when they say to their children, "Unless you behave, unless you stop this, I shall cane you". If the child does not stop, it is invariably caned, and that was what the Chancellor intended to do. However, because of certain advice, he decided not to do it. Who are the gentlemen of whom the Chancellor takes most notice? In framing his Budget they will be the gentlemen at the Treasury. It is obvious that the present Lord Privy Seal when he was Chancellor was paying attention to the advice of the Treasury officials. He was taking the advice of the experts who

knew what was happening and he gave his warning as a result of that advice. Presumably, those same officials were consulted about the framing of the
present Budget by the present Chancellor. They must have told him that the warning of the Leader of the House had been ignored and that these gentlemen had continued to pursue their bad ways, ways which the Leader of the House had said he would penalise if they were not stopped.
The Chancellor expected to collect £4 million this year from this source. Now he will not collect it from that source, which presumably means that it will be collected from somebody else. Either the services for which the Budget was framed will be maintained or they will be reduced by £4 million, and none of us hopes that any service will be curtailed. We all hope that those services will be maintained at the levels indicated in the various Estimates. Therefore, the £4 million involved will have to be collected from somebody else.
I agree that, generally speaking, retrospective legislation may not be desirable, and that principle has been followed in this country over the centuries. However, in this case there was every justification for it. Those who indulged in the practice of dividend stripping were acting contrary to the spirit of the law and ignoring the warning given by a former Chancellor and they could have no grumble if the present Chancellor now decided to cane them.

Mr. Shepherd: I appreciate the course that my right hon. Friend the Chancellor is taking. It is not an easy course to take, as is apparent from the comments of hon. Members opposite. The tendency of all of us, against which we have to guard, is, because we do not like these practices and possibly the individuals who habitually make use of them, to accord those individuals and their practices a lower measure of regard than we would give to ordinary citizens, thus departing from our accepted safeguards for the individual.
I share the dislike of these practices which is common to most hon. Members, but however much one may dislike a practice, it is very proper that the rights of the individual should be safeguarded. When these individuals indulged in these practices they thought that they were


acting in accordance with the law, and it is utterly wrong at a later date to impose a penalty on individuals who, at the time an act was committed, believed that they were acting in accordance with the law.

Mr. Diamond: They thought that they were acting in accordance with the law since they took great pains to avoid acting against the law and took great pains to circumvent it.

Mr. Shepherd: I fully accept that and I dislike what they were doing, but it is still a sound principle that we should not penalise people who, when they entered upon a transaction, were acting in accordance with the law—whether we like it or not. There is no doubt about this being a penalty if they have to repay the amounts involved. If at a later date they have to pay back some £50,000 or £100,000, that is a penalty retrospectively enacted.
I say to hon. Gentlemen opposite that, much as we dislike the actions of these individuals in adopting these practices, we ought not to sacrifice a principle because of that dislike. I believe that it would be a very bad thing indeed in our community to attempt to run the country on a basis of Ministerial warnings, even for as good a purpose as this.
I agree with hon. Gentlemen opposite that a Ministerial warning in this connection probably has as much justification as an act of the Government as any other action. I think that there is probably more case for saying that a Ministerial warning ought to have the value of a sanction in this case than in any other. Even though I admit that these are circumstances in which Ministerial warning has justifiably more force behind it than in some other cases and that there is probably more right to subsequently enact retrospective legislation, I still think that the idea of giving a warning or controlling citizens by means of Ministerial warnings is utterly repugnant. I would not do it for the sake of gaining £4 million, £5 million or £10 million.
I think that one must stand for principles in this matter. [HON. MEMBERS: "Oh."] I know that hon. Gentlemen get derisory about this, but I say that these principles of not running the country on the basis of Ministerial warnings and not penalising people retrospectively are

important principles. If we give these principles away, merely because we dislike a certain form of action by individuals in our community, we shall not, in the long run, advantage ourselves. We shall erode our principles. I appeal to hon. Gentlemen opposite to take this view. I dislike dividend stripping as much as they do. It is a bad policy altogether. It is still indefensible, but I think that the principles which govern the conduct of the country should not be sacrificed because of our dislike of this policy.

Mr. Diamond: I follow the hon. Member's argument completely, I understand it and I accept the logic of it far more than the logic of the Chancellor's argument, but what he is saying surely leads to the conclusion that in no circumstances, as opposed to the Chancellor, would he support fiscal retrospective legislation given under an appropriate warning which was given in an appropriate place and circumstances.

Mr. Shepherd: I would not support legislation which meant a penalty retrospectively. I am perfectly prepared to accept retrospective legislation if an advantage is given to the citizen, but I reject the idea of imposing a penalty retrospectively.

6.15 p.m.

Mr. Ede: I am quite sure that we all recognise the sincerity with which the hon. Member for Cheadle (Mr. Shepherd) has spoken. I am not being sarcastic when I say that his speech ought to have been delivered in 1955, when the warning was given, to make it quite clear that so far as hon. Members opposite were concerned, if it ever came to putting the warning into practice, they would oppose the Chancellor who tried to do it.
The Chancellor himself, whenever he alluded to the impropriety of the proceedings, by this warning and by applying it to this particular case, always added at the end that it should not run for ever—the warning could not last for ever.
We are not dealing with what Mr. Gladstone said in 1868. We are dealing with something which was said in 1955. Prior to then, as I understand it, dividend stripping was a normal process, and, so far as I know, it had never been objected to in the House of Commons and no Ministerial statement had ever been made


condemning it. But in 1955 it was stated in the House, in the various warnings which were read out this afternoon by my hon. Friend the Member for Islington, East (Mr. E. Fletcher), that this was something worse than an undesirable practice. It was apparently a practice of somewhat wide range and of varying characteristics. A Clause was invented, which was put before the Committee, in which certain of the varieties of this practice were undoubtedly stopped.
My right hon. Friend the Member for Huyton (Mr. H. Wilson), and others speaking from this side of the Committee, pointed out that there were similar devices not easily distinguishable from those to which objection is now taken, and which also should have been stopped, if possible, in the Clause which was then before the Committee. Some of the quotations were read by my hon. Friend the Member for Islington, East this afternoon.
In answer to that, two Ministers, the present Minister of Housing and Local Government, who was then Financial Secretary, and the present Parliamentary Secretary to the Ministry of Education, who was then the Economic Secretary, gave a warning in clear terms—and on one occasion the Financial Secretary said that he gave it on behalf of the Chancellor—that if these parallel practices, these varieties of the same practice, were tried in the future, legislation would be brought in to widen the scope of the Clause then being passed. As my hon. Friend the Member for Gloucester (Mr. Diamond) pointed out, this Clause has exactly the same rubric as the Section in the 1955 Act, so as to make such practices illegal and so that, so far as any which had occurred up to that time were concerned, the law would be retrospective.
I am prepared to accept the doctrine that Ministerial statements are not law, but in this case they were rather a promise of law than a threat of law. We come tonight to the point where the promise has to be kept. Either hon. Members opposite did not think that the matter was worth raising, or at that time they were in favour of making it retrospective if it was thought that anyone would dare to do anything after being warned by the Financial Secretary and the Economic Secretary.

Mr. Shepherd: The right hon. Gentleman is doing less than justice to hon. Members on this side of the Committee. If my right hon. Friend had issued this warning it would not have been in the public interest for us to detract from its value today.

Mr. Ede: I always try to do less than justice to hon. Members opposite. In the words of Shakespeare,
…consider this,
That in the course of justice none of us Should see salvation;
Therefore, I accept the rebuke of the hon. Gentleman. But what my right hon. Friend has said is quite correct. That was supposed to be a statement not merely by the Government but by those who support the Government, unless they repudiated it. In the circumstances, it is now clear—and every person in this line of business in the City knows it—that, no matter what is said about such practices in the House of Commons, when it comes to enforcing any promise of the kind made in 1955 the Government will not be allowed to do it because of the revolt of their back benchers at any time when we try to interfere with any practice that is very prevalent in the City.
After all, are we to understand that the people who invent these practices are the innocent sort of people who do not follow what is said? Does anyone mean to say that between 1955 and now these schemes have gone on being prepared by people who never knew what the former Financial Secretary and Economic Secretary said? These are not the widows and orphans who are generally introduced by the party opposite as the people who suffer under any Budget or legislation brought in by us on this side of the Committee. These are among the smartest people in following the details of the efforts made to prevent their practices one can find anywhere in the world.
The Chancellor of the Exchequer has yielded to the pressure which has been brought to bear upon him by people every one of whom has repudiated any sympathy with these dividend strippers. Even the Leader of the Liberal Party Went out of his way to assure the City of London that they will be quite safe from anything of this kind when he holds the balancing power—which in future will enable the rump to lead the Parliament.

Mr. Mitchison: We on this side of the Committee regard this as a very important matter. I should like to associate myself at once with what my right hon. Friend the Member for Huyton (Mr. H. Wilson) said about it earlier. We do not like, any more than the party opposite likes, retrospective legislation. I heard the Chancellor say today that he regarded retrospective legislation with repugnance—or some such word—and that it should be introduced only rarely, but he did admit, and I agree with him, that there are occasions when retrospective legislation is necessary.
I start from that. I then come to consider the character of the problem we have to deal with on this Amendment. What we are discussing is, first, a series of warnings, which I will not repeat, for they were perfectly clear. Everybody in this Committee, including the Chancellor, knows quite well that they were intended, in general words, to cover the case provided for in this Clause, and that there really can be no question that they were exact enough to include it. They may have included other things, but about that there can be no reasonable doubt.
Why is it that a warning of this sort becomes necessary? It becomes necessary because of a practice of a type which everyone in this Committee has said he disapproves of—evading tax liabilities or making tax gains in some ingenious form; and that practice, in one form or another, is carried on by a sufficient number of expert people for them to be always one step ahead of the Revenue. The Revenue stops one loophole, and the tax evaders then see if there is a way round; and the more ingenious and difficult the matter which is being dealt with at the moment the more likely are they to find a method of evasion. As has been said in this discussion, the Revenue will not know about it until the case arises.
That is of the nature of these fiscal questions. We can stop quite easily the plain man who tries to make a little extra. That is easy and simple. Those loopholes are stopped; they hardly exist in life. It is not the plain man who thinks up this sort of thing. It is people who have now become experts not at tax dodging, but at tax avoidance. When this Clause is passed today a number of them will think, "Is there any other way of getting from the Revenue a benefit of

the type known as dividend stripping?" It so happens that what is dealt with in this Clause is so very close to the thing about which the warning was given in 1955 that there really can be very little question about it, but, of course, they may always get just round the margin.
The next thing we have to consider is the necessary character of the ministerial warning. As the hon. Gentleman the Member for Orkney and Shetland (Mr. J. Grimond), the Leader of the Liberal Party pointed out, a warning, of course, cannot be as precise as legislation, for if it were then one would simply introduce the legislation. It is bound to be in somewhat more general terms. It is, perhaps, a happy accident for the good government of this country that the warning which was given in 1955 so very clearly covered this case. It does not always follow that the warning does cover the case.
The next question is this. We get a warning given in these terms. I am not going to quote it again. It was so clearly, fully and ably put by my hon. Friend the Member for Islington, East (Mr. E. Fletcher), who moved the Amendment, and my hon. Friend the Member for Gloucester (Mr. Diamond). However, I would remind the Committee of something said in the final warning, which was one of a whole series of warnings, and which was given on 13th December, 1955, just the date we have taken in the Amendment because it was the date of the last of the warnings. All the others preceded it. This only added to what I should have thought was clear already.
The right hon. Gentleman who is now the Minister of Housing and Local Government, after saying that
the dividend strippers have been given notice to quit
said:
With the authority of my right hon. Friend the Chancellor of the Exchequer, my hon. Friend the Economic Secretary has also put it on record that if clever people should discover ways and means of getting round this legislation"—
and that is what they have done—
which is squarely directed against dividend stripping"—
and that was the word used by the right hon. Gentleman in describing these provisions—
the Government will not hesitate to stop any such loophole by further legislation, and to


make such legislation retrospective."—[OFFICIAL REPORT, 13th December, 1955; Vol. 547, c. 1022.]
Really, there is no possible ambiguity about that. Right hon. and hon. Members opposite who seek to find it must be very short of good reason for what they have done or failed to do. It is perfectly clear that that is the character of the warning in this case.
6.30 p.m.
First, is it necessary that there should be such Ministerial warning? If we are prepared to let not only this gang of ingenious people, but similar gangs, get away with it, Ministerial warnings become unnecessary. All one does is that when it becomes
too frightful, one stops it. [An HON. MEMBER: "Hear, hear."] I hear somebody say, "Hear, hear." If that is the right course, what do we do? It is not entirely an abstract question between these people and the Treasury.
One way of looking at a Budget or a Finance Bill is as a calling-up of the Treasury's requirements from various people and groups of people; and if one group pays less than it ought, or succeeds in increasing Revenue demands by the type of practice that we are considering, other people have to pay for it. Those who talk about the rights of the individual in this connection should consider what individual they want to support—the individual dividend stripper or the individual taxpayer who has to pay rather more taxes because dividend stripping has not been stopped. That is the question which we have to consider.
Next, I notice that hon. Members opposite were driven to draw a distinction, no doubt technically a correct one, between what they call Parliament speaking and a Ministerial statement. I do not know quite how Parliament speaks, but one hon. Member assured us that Parliament can speak only by legislation. We get back to the same old point that we can never have a Ministerial warning because it cannot be as precise and exact as is required for a particular case. In effect, that means that we must never do anything but that which is sufficiently exact and precise to be embodied in legislation. Therefore, as far as that goes, there is nothing in it.
But let us consider the position of a Ministerial statement in a matter of this sort, in a country governed by a party

system such as ours. Hon. Members opposite say, in effect, that they are not bound
by a statement made by a Tory Chancellor,
which was not objected to by any of them at the time. They might not have been in the Chamber, which is more than possible as a rule in debates on the Finance Bill. They say that they are not bound because they did get up to say, "Hear, hear". That is not the way a country is run. If a Tory Chancellor makes a promise, or a threat, it is political dishonesty for members of the party opposite to say that it does not bind them.
What happens when hon. Members opposite go through the Division Lobby in support of their party and they have not said anything about the matter under discusssion? We do not take it that on every minute detail what the Government do always represents their own personal views, but a Tory Chancellor making a promise or a threat of this sort is certainly committing his party to it. He is committing not only the Government of the day, but his successor in office and, for a reasonable period, those who follow him in the same succession.
That promise or that threat was quite clearly given on behalf of the Tory Party at the time. I repeat that I regard it as plain political dishonesty for hon. Members opposite to say, "We read it in HANSARD. We sat and listened. We did nothing about it. It was our Chancellor of the Exchequer or our Financial Secretary or Economic Secretary who said it, but we are not bound by it". Why do they say that? Is it because they have adopted a new principle? We know that both Mr. Neville Chamberlain and Sir John Simon said the exact opposite.
We have heard the Chancellor say today something which was quite inconsistent with what was said by the right hon. Member for Blackpool (Sir T. Low). They take quite different views. I do not regard this as a principle at all. I regard this as opinion, one of which can be wrong and the other right. There is no principle that I can see in it, and certainly nothing which justifies some of the arguments produced today.
It comes to this—that a definite warning, which included this particular case, was given on behalf of the Government of the day, if one looks at it one way,


and on behalf of the Tory Party, if one looks at it another way. The Chancellor brought forward in his Budget and in his Ways and Means Resolution a proposal in exact line with the warning and promise then given, but he has now been compelled to drop it, or he has come to drop it.
What exactly has happened? We have to speak a little bluntly about these matters. I asked the Chancellor whether he really thought that the warning did not cover this case. I did not receive an answer, except that some people thought it did and some thought it did not. Then we had a similar question about warnings given in the House of Commons. It is nonsense to say in a case of this sort that any warning given in the House is not read by those who are concerned in evading its consequence. I do not know what came over the Chancellor when he came to that point.
In his Budget speech the Chancellor said:
I now turn to a small group of proposals which I have felt bound to include for the protection of the Revenue
That is, without doubt, on advice, and on facts known to his Department, including the Board of Inland Revenue. He went on:
The first has to do with an activity known as dividend stripping.
He said a few words about it and then added:
Although my right hon. Friend the Lord Privy Seal dealt with this in his autumn Budget of 1955, and despite stern warnings given them, I am sorry to say that apparently the fascination of dividend stripping is such that it is still being practised by some.
There can be no doubt that at that time the right hon. Gentleman had no doubt whatever that the warnings covered this case, and that they were stern warnings.
A little later, the right hon. Gentleman referred to the passage which I have just read and said:
My right hon. Friend the Minister of Housing and Local Government gave clear warnings in 1955, in another capacity, that the Government would not hesitate to legislate against subsequent attempts at dividend stripping, and to make such legislation retrospective.—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 61.]
There is not the faintest doubt that the right hon. Gentleman, at that time, knew of the necessity for this legislation, knew

of the necessity for retrospective legislation, and knew that the case with which he proposed to deal was fully and exactly covered by the warning given on behalf of the Government and the Tory Party in 1955, and intended to carry out the threat that was then made against the practice of dividend stripping.
What has happened? The next stage is that the right hon. Gentleman comes along on 29th April, 1958, and we get this:
There were very difficult considerations which had to be taken into account in this case"—
at what stage, before or after he made his Budget speech?—
and I did not find this an easy matter on which to reach a decision.
But what about the decision made in the Budget? He continued:
The representions which I took into account came by no means from one direction but from many different directions.
A remarkably gusty day, if I may say so. He then said:
I mention among them the doubt as to whether the warning was sufficiently wide to cover the new methods which have been discovered in the meantime. I am not sure.
With the greatest possible respect to the right hon. Gentleman I find that difficult to follow. That was a very clear warning indeed. The right hon. Gentleman was absolutely clear about it in his Budget speech. He said it was a clear warning. He said it was a stern warning. If he has not enough common sense to stand up to the representations to the contrary that were made to him, I feel the gravest doubt whether he is the right person to fulfil his present high office. The right hon. Gentleman continued:
It was my view to start with that it was wide enough, but there is a doubt about that."—[OFFICIAL REPORT, 29th April, 1958; Vol 422, c. 198.]
Whose doubt? The two Clauses are labelled in the same way, they are about the same thing, the warning has been described as a clear one, nobody can have any real doubt about it, and the people who made those representations must have made them for other reasons. We have not heard it suggested today that it was not really clear enough, that it did not cover the case or anything of that kind. We have got back to a principle. It is a principle that we must not do these things now. There was not a word


about it in the statement of the right hon. Gentleman, or in the speech he made today, because he admitted that there were proper cases for retrospective legislation.

Mr. Diamond: If I may interrupt my hon. and learned Friend, I was hoping that he would try to elucidate from the Front Bench opposite what these cases might be, when it would be right, and when we could get a better case than the case we are dealing with now.

Mr. Mitchison: I entirely agree with that interjection and I would add this comment, that we, too, dislike retrospective legislation.

Mr. Pickthorn: Not all.

Mr. Mitchison: I was speaking for my party and my right hon. Friend the Member for Huyton also spoke for my party when he said exactly the same thing. Really, the hon. Member for Carlton (Mr. Pickthorn) must accept that from me. That is our view. I do not ask complete unanimity of any political party on every point. I merely ask right hon. and hon. Gentlemen to do what the Tory Party is at the moment declining to do, to carry out collective pledges and collective promises. It is already incurring the reputation of being a party of broken promises. I hope that it will not add to that the reputation of being a party of empty threats, because that is what appears to be the likely result of these proceedings.
Now I turn again to the right hon. Gentleman. I am not making a personal attack on him. He knows that, and I hope that he accepts that I would not dream of doing it. I am attacking his political conduct in this matter. I regard it as most unsatisfactory that we should not get a better excuse or reason for this complete change of attitude—which, of course, means only £2 million in this case, but which also means a charter for dividend strippers and similar folk in future—than what was said on 29th April, or anything that can be added to it today.
6.45 p.m.
We have a responsibility in this Committee that sometimes rises above individual cases and that calls on us to do what we consider to be the right thing. Those members of the party opposite

who made representations to the right hon. Gentleman the Chancellor, and any other people interested in this matter who made similar representations, seem to me to have done something which it is difficult to justify, having regard to what had been said in the past, and difficult to justify in the interests of good government.
Whatever may be said about the rightness or wrongness of Government warnings of this kind, that warning was given in no uncertain terms. Some people no doubt followed it. They believed that it would be carried into effect and they refrained from doing things which they might otherwise have done or did things differently. Others, on the other hand, looked at it and said, I suppose, "Well, this party cannot be relied upon to carry out the threats it makes and we will deliberately seek a way round this. We know that we shall not suffer by it, or at least we have not sufficient confidence in the party to refrain from taking that chance." Now it is those last people whom we are benefiting at the expense of those who believed in the warning when it was made. As I see it, that is the inevitable consequence of failing to implement any Ministerial warning.
It is easy to draw fine distinctions. It is easy to invent new principles or to misapply old ones, but at the end of the day it comes down to this: right hon. and hon. Gentlemen opposite know perfectly well, as the Chancellor did when making his Budget speech, that a threat was made in November, 1955, which exactly covers this case, and which, in political honour, binds them today. Is he, and are they, prepared to disregard an honourable obligation?

The Paymaster-General (Mr. Reginald Maudling): As my right hon. Friend the Chancellor of the Exchequer has made clear, this is a matter in which he admits and accepts that there are arguments on both sides. There was a clash of principle here between the maintenance of the Revenue—and, of course, we accept that if taxation is not gathered from one group of people and the same amount of money is needed, it must be gathered from other groups of people—and, on the other hand, there was the principle which we on this side of the Committee, and, I gather, the majority of hon. and right hon. Gentlemen opposite, accept,


that retrospective legislation is a bad thing.
So this is a clash of principle, or balance, to which my right hon. Friend had to have regard, and he has come to the conclusion that the argument against retrospective legislation is in this case an overwhelming one.

Mr. William Ross: Why then did the Chancellor say what he did in his Budget Speech?

Mr. Maudling: My right hon. Friend has been accused of changing his mind, but, as my hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) pointed out, the ability to change one's mind is not a sign of a lack of strength. It is a sign of, a lack of stupidity. I think that the ability to change one's mind in the face of argument is a good quality in a Minister. I often think that an expression of opinion, if one agrees with it, is called an expression of opinion and, if one does not agree with it, is called a pressure group. The fact remains that it is the same thing. It is the right of a Minister to listen to representations on matters which affect the public good.

Mr. H. Wilson: Will the right hon. Gentleman deny that representations were made to the Chancellor by an important and substantial group of back bench Government supporters, without the matter having been discussed in the House, stating that they would not support him in the Lobby if he went on with the proposal?

Mr. Maudling: My right hon. Friend listens, as it is his duty to do, to both what is said in this House and what is said by people outside on matters of public interest. No Chancellor could do anything else. [HON. MEMBERS: "Answer the question."] I have answered the question.
A certain amount of prejudice has been introduced into the argument on both sides. In the first place, I have seen articles in newspapers suggesting that what the Chancellor did in his Budget was to make illegal ex post facto what was legal at the time. That is nonsense. Equally, on the other side prejudice is introduced into the argument by confusing what is tax evasion and what is

tax avoidance and coupling the two together in the phrase "tax dodging."
We must be careful to distinguish between the two. Tax evasion is the illegal non-payment of tax, which is a criminal offence. Tax avoidance is the legal non-payment of tax. There has always been a maxim of the law in this respect. I think it was Lord Sumner—I am not sure—who said that it was the right of any citizen so to organise his affairs as to pay the minimum of tax. That is a fundamental principle of our law, and always has been.
To give a simple, well-known example, I am told by the leading photographer in my constituency that he gets a flow of business in March every year when people get married in order to obtain the benefit of the marriage allowance for the full year. They thus arrange their affairs within the law so as to avoid the payment of tax. There is a fundamental difference between avoidance of tax, which is a legal operation, and evasion of tax, which is illegal, and to confuse the two does not help the Committee.

Mr. Mitchison: Surely the right hon. Gentleman will recognise that this case is neither the one nor the other. What happens here is the recovery of a sum of money from the Revenue to which we all think that the gentlemen or companies in question are not morally entitled.

Mr. Maudling: By his intervention the hon. and learned Gentleman has substantiated the point that I was making. We are not dealing with the evasion of tax or with an illegal process. Yet the word "evasion" has been used on too many occasions by hon. Members who have taken part in the debate.
A point which has been raised by
several hon. Members is that of the warning. There appears to be a considerable difference of opinion here. It has been suggested by some hon. Members opposite that there is no real distinction, whatever the formal position may be, between a ministerial warning and something recorded and voted on by the House. That is a doctrine which the Committee and the House as a whole cannot possibly accept. If the hon. and learned Member for Kettering (Mr. Mitchison) and the hon. Member for Gloucester (Mr. Diamond) will study the speeches which


have been made they will find it suggested that the distinction between a Ministerial statement and a decision of the House recorded by a vote is only a formal one.

Mr. Mitchison: So far from saying that, I said the opposite. I said that a Ministerial statement must necessarily be of a character quite different from legislation, because if it was a matter sufficiently precise upon which to legislate, the House would legislate. They are quite different things, but they are equally binding on the Government and on the parties on whose behalf they were made.

Mr. Maudling: That is exactly the point. They are of a different character; therefore, they have a different effect. In view of what the hon. and learned Gentleman has just said, how can he possibly say that they are equally binding? It is nonsense.
We are concerned here with the tax liabilities of individuals, and what I am saying from the point of view of the tax liabilities of individuals is that there must be a difference between Ministerial statements, challenged or unchallenged, and things laid down in the House by statute.

Mr. E. Fletcher: Does not the right hon. Gentleman realise that a decision was arrived at in the House pursuant to a Ministerial warning? The Amendment moved by the Opposition in 1955 was rejected by the House in its reliance upon a Ministerial warning.

Mr. Maudling: I am speaking about the point of view of the individual taxpayer. To my mind, it is not a reasonable argument that the individual taxpayer should be bound by a Ministerial statement, even if unchallenged, as he is bound by statute law.

Mr. Mitchison: The right hon. Gentleman must consider the points which have been put to him. What has been said is that a Ministerial statement is binding in honour on the Government and on the party on whose behalf it is made, and if that Ministerial statement includes a promise to bring in retrospective legislation, it is right that retrospective legislation should be introduced in the case contemplated.

Mr. Maudling: I am saying that from the point of view of the individual a

Ministerial statement is not the equivalent of anything passed by Parliament. That is the point. In considering what legislation should now be introduced, my right hon. Friend has to balance, on the one hand, the warning given in the House and, on the other hand, the objection to retrospective legislation, and he has to balance one against the other on the basis of what is right for the individual taxpayer.
As for the nature of the warning, I think that if right hon. and hon. Gentlemen opposite will study the statements by my right hon. Friend who is now the Minister of Housing and Local Government and my hon. Friend who is now the Parliamentary Secretary to the Ministry of Education they will find that, as the Chancellor has said, there is room for doubt as to the exact scope of the warnings given at that time.
What we are really arguing about this afternoon is the nature of the retrospection. It has been said by some hon. Members opposite that the Government are in favour of retrospection when it benefits the taxpayer but not when it is against the taxpayer. That is true. That is our point of view, and it seems an entirely reasonable point of view. For example, where there is something illegal, it would be reasonable to make it legal after the event, but where we have something legal, it would be wrong to make it illegal after the event. There is nothing illogical or wrong in saying that one can act retrospectively to benefit the individual taxpayer but should not act retrospectively to the disadvantage of the individual taxpayer.

Mr. Diamond: Can the right hon. Gentleman explain how he ties that statement up with the statement he made a few moments ago that if one gives a benefit to a certain group of taxpayers one has to collect the money from other groups?

Mr. Maudling: If the hon. Gentleman carried that argument too far, it would be wrong to accept any Amendment to any Finance Bill which benefited any class of taxpayers. Clearly that is wrong. The considerations
which affect
reductions of tax liability are different from those which affect impositions of tax liability. I should have thought that that would be obvious even to right hon. and hon. Gentlemen opposite.
The question here is the principle of retrospection. As my right hon. Friend has made quite clear, we feel that the objections on principle to retrospection in tax impositions on this occasion, after weighing all the arguments, are so strong that we cannot accept the Amendment.

7.0 p.m.

Mr. H. Wilson: I had not intended to speak on the Amendment as I hoped to offer a few words on the Question, "That the Clause stand part of the Bill", but I feel that I must rise to draw attention to the fact that the Chancellor has not replied to the debate. I hope that before the Question is put he will reply, because we must tell him that his own position is very much involved in this matter. He spoke for a few moments at the very beginning of the debate from a carefully prepared script which said absolutely nothing, but proved that he was responsive to almost any wind that blew upon him.
Since that time, the debate has continued for another two and a half hours and some serious statements have been made, but the Chancellor has not attempted to answer them. With the greatest respect to the agility of the Paymaster-General, he has not set out to answer those points. Many questions have been put to the Chancellor to which we have not had an answer. Whether that was avoidance or evasion, I do not know, but, certainly, we have not had an answer to the questions which have been put. We did not have an answer from the Paymaster-General and I now want to put one or two questions to which I hope the Chancellor will reply before we divide the Committee.
We have heard a lot about the representations which were made between the Budget debate and the Chancellor's surrender. Who made the representations? From where did they come? We know that there was a small but highly organised campaign of correspondence in The Times. Surely the Chancellor is not pushed away from a principle in which he believes by reading one or two not very coherent letters in The Times. Who made the representations? Did they come from the legal profession, or from the accountants? Did they come from the tax dodgers themselves?
Will the Chancellor answer what the Paymaster-General has just refused to answer? Was there, as was reported in the Press at the time—I cannot say whether it is true—a threat to desert him in the Division Lobby today if he did not give way on this issue? We read in the Press at the time that a powerful group, or, at any rate, an influential group, of Conservative back benchers, headed by one or two Privy Councillors, had made it clear that they would not vote with the Government on this question unless the Chancellor gave way on the issue of retrospective legislation. Is that the case or not. Was that decision made? It was reported at the time, and as far as I know it has not been denied.
I can sympathise with the right hon. Gentleman. That would have been a serious state of affairs for him. On past occasions, however strongly they have felt, right hon. and hon. Gentlemen opposite would not vote against the Government. For instance, at the time of Suez they would not vote against the Government, yet on this issue about the tax dodgers they cared so much about the matter that, if the Press is right, they were prepared to vote against and, if necessary, bring down their own Government. Will the Chancellor tell us whether that is the case and whether that was the pressure to which he surrendered on this occasion? He was very obscurantist in the short statement he made this afternoon about the considerations which led him to change his mind.
Does the Chancellor accept that there was a series of Ministerial warnings in October, November and December, 1955? He said today that there was a case for retrospective legislation when there had been a warning. He was repeating the words of the late Neville Chamberlain and the late Sir John Simon. He admitted that there was a case, and he implied that the only case for retrospective legislation was where there had been a Ministerial warning.
Will he admit that Ministerial warnings in the clearest possible terms—they have been read a number of times and I do not want to weary the Committee further by repeating them—were given? Was it right for Ministers to issue warnings at that time, or was it wrong? Will the Chancellor show some straight-forwardness and purpose and repudiate


them, and say that the warnings should not have been given—since that is the inference of his action or inaction? He implied that the warning was wrong both in its form and wording and, for a reason which we have not understood, in its nature or place or timing.
What was wrong with the wording? We have made it absolutely plain, and no one on either side of the Committee has attempted to deal with this matter, that of the three issues being covered and which were
described by the Financial Secretary on Second Reading, only one is in any doubt at all. The other two are clearly related to Section 4 of the Finance Act, 1955, and to the warnings given by Ministers on that occasion. At any rate, on that argument the Chancellor ought to have stuck to his guns in respect of those issues which were clearly within the warning. The mere fact that there may have been doubt about the third may be an argument for giving way on that third issue. Personally, I disagree, but even if the Chancellor came forward with that proposal, he could not justify his decision on the issues where there is no question about the coverage of the warning.
This may have an important bearing on the future attack on tax dodging. What were the meanings of the obscure words suggesting that a Ministerial warning in the House of Commons does not have the authority necessary to justify retrospective legislation, which, on his own statement today, the Chancellor feels is sometimes justified? If it is ever justified, what kind of Ministerial warning is needed? The Chancellor ought to answer that question. Is not this the right House in which to make the warning? It could not be made in another place—the whole House would revolt at the suggestion. Does there have to be some official publication—I suggested in the London Gazette—before the warning carries the authority to which the Chancellor referred? When he has answered that, let us note this: in the light of the arguments he has used this afternoon, what was the point of making the warning in 1955?
Reference has been made to an apparent loss of revenue of £2 million—which is nonsense. The figure is nothing like £2 million. It is at least £10 million.

I will not weary the Committee with the calculations. I do not know where the Chancellor got the figure of £2 million, but if he wants to check the figure of £10 million he can look at the arguments and statistics which we deployed when debating Section 4 of the Finance Act, 1955. He will find that the Treasury's then estimate of the amount involved in dividend stripping was proved to be far too small, because it was only the Treasury's estimate of the amount of tax refund claimed and, as we all know, in the dividend stripping operation there is far more at stake than the amount of tax refund involved. We found the figure to be nearer £15 million than £4 million and I am certain that this figure of £2 million must be based on only a very partial estimate. It is too small, because it does not cover the whole operation and because it has been kept to artificially low levels because of the threat of retrospective legislation.
Whether the figure is £2 million, £5 million, or £10 million, does not the Chancellor think that it has a relevance either to justice as between taxpayers, or to the inflationary position which he is always telling us the country is facing? I should be out of order if I were to say anything about recent industrial disputes and the disturbance and chaos involved in that case for the sake of a few thousand pounds. We were told that a principle was at stake because of the issue and the inflation about which the right hon. Gentleman the Member for Monmouth (Mr. P. Thorneycroft) had so much to say last autumn. Apparently, there is something highly inflationary in a few thousand pounds for the busmen and nothing inflationary in £10 million for the dividend strippers.
Will the Chancellor, or any of his hon. Friends, explain to us how he can possibly argue in that way, because £10 million given away in this manner, given back to the tax dodgers, to that extent reduces the size of the Budget surplus, and for many years we have deliberately created a Budget surplus for the purpose of fighting inflation? If that surplus is reduced by £2 million, £5 million or £10 million, the action is exactly the same as that which the Government claim would result from an inflationary wage increase. We have not had an answer from the Government on that issue.
Finally, I said in 1955—and it is very clearly on record—that the method proposed by the Lord Privy Seal in 1955 would not deal with the problem. I said that on Second Reading, in Committee, and on Report, and so did my right hon. and hon. Friends. It was only because we thought that the Government meant business—and they talked in a most ominous manner, as though they did mean business; we had assurances many times from the then Financial Secretary— —

Mr. Diamond: We were misled.

Mr. Wilson: We were misled into thinking that the Government did mean to deal with this evil. That was why we did not press our Amendments further in regard to the alternative means we proposed to deal with this matter.
The Chancellor must admit that we were right and that the then Chancellor was wrong, and that this method did fail to deal with the problem of dividend stripping, and that it did not honour the Financial Secretary's statement that the Government were going to exterminate it. Our method would have done, and it is because of that that we are soon to debate the Question, "That the Clause stand part of the Bill."
We said that the Government's method was not the way to proceed, and since then all these new methods have been devised. It is precisely because the Government are so weak in this matter that we have little faith that they will carry on this fight in the future. They have stopped up one or two loopholes with Clause 16 but, as I said in the Second Reading debate, I am certain that, for every loophole they have stopped up in this legislation on tax avoidance, the Chancellor will find that before we have passed this legislation into law another ten methods will have been devised of getting round this Clause.
That is why we feel that strong and extreme measures are needed to deal with these people. I am sure that that is the advice that the Chancellor is getting from the Board of Inland Revenue, and that it is the only basis upon which he can act fairly in relation to other taxpayers who do not have the same opportunities for dodging taxation or, in this case, more than dodging taxation—

because this is not merely disposing of one's affairs in such a way as to pay the least amount of tax; this is claiming back from the Board of Inland Revenue taxation which has never been paid.
That is the essence of dividend stripping. It is a method of getting a hand-out from the Board of Inland Revenue. It is a form of subsidy. These people are going along cap in hand—or top hat in hand, or whatever they wear—and the Board of Inland Revenue is doling out money which has never been paid in taxation. That goes much further than the kind of practice to which the Paymaster-General referred, when he quite fairly said that it is up to the average taxpayer to dispose of his affairs in such a way as seems most reasonable to him under the tax law.
I said earlier, after the Chancellor had spoken, that it was quite clear that he was capable of being moved by any pressures put upon him—first, by the Board of Inland Revenue, in the Budget; secondly, by the Tory back benchers, and those unnamed and mysterious persons who have made representations to him, and, thirdly, today, because the weakness of his attitude had caused doubt in the financial community about the Government's policy or willingness to fight tax dodging, he had obviously succumbed to a certain amount of pressure from the Board of Inland Revenue to utter some tough-sounding phrases this afternoon which, on probing, clearly represent nothing.
When we debated the Budget I described it as a mouse of a Budget. After the way the Chancellor has carried on, in surrendering to pressures on the issue that we are now debating, it is clear that we have a mouse of a Chancellor.

Mr. Amory: I have already concisely stated the reasons that led me to change my mind in this matter of retrospection, and I have very little that I can usefully add now. The right hon. Member for Huyton (Mr. H. Wilson) asked me to what opinions I attached weight and what opinions were factors in leading to my change of opinion on this point. He referred to something like an organised rebellion. We do not have organised rebellions. [Laughter.] With the right hon. Gentleman's experience of the way things are settled in his party I quite understand how that thought came easily to his mind.

Mr. H. Wilson: Mr. H. Wilson rose—

Mr. Gerald Nabarro: Not again.

7.15 p.m.

Mr. Wilson: Unfortunately, I did not say that it was an organised rebellion. I said that there had been an organised correspondence in The Times—although I would not call that a rebellion. I did, however, refer to the statement made in the Press that certain hon. and right hon. Members opposite were going to vote against the Government.

Mr. Amory: This is not the first time that I have said that I first listened to the speeches made during the course of the Budget debate—and I do not think that the right hon. Gentleman could quarrel with me for doing that—and then, outside the House, I listened to the opinions of friends and acquaintances whose opinions I value; then I read the newspapers, and the opinions expressed in the Press for and against retrospection, and I also received a number of letters, as one always does on these subjects, both for and against retrospection. Those were all the opinions I took into consideration, and I am not going to apologise for having changed my mind in the light of weighing up such opinions. I am quite prepared, to change my mind in this way, and I think it would be a very stupid man who would take pride in not changing his opinion when he was convinced that the balance of advantage lay in a direction different from what he first thought.
The right hon. Gentleman seemed to imply that because a substantial amount of money is involved that was a factor to which I should have attached exclusive importance. I do not agree with that view. A substantial amount of money is involved. I am not quite sure why the figure of £2 million was mentioned, because I have not specifically mentioned £2 million as the total estimate covering this loss. I do not know what the figure would be, but I would judge that, in total, it would be substantially higher than £2 million, but considerably lower than the £10 million quoted by the right hon. Gentleman.
If I mentioned a figure of £2 million it might have been to say that that was the amount that would have arisen from one year only, but it could not

possibly be for the period going back to 1955.

Mr. Diamond: The figures are here in the Financial Statement. The estimate for a full year arising out of the right hon. Gentleman's then proposal, which was to tax retrospectively, was £2 million. The estimate for 1958–59, which included a lag for one or two years, was £4 million.

Mr. Amory: That was the figure—not £2 million. I may have misunderstood the right hon. Gentleman.

Mr. Mitchison: It was perfectly clear. The right hon. Gentleman himself, when introducing his Budget on 15th April, said in reference to his present proposals:
This should make good a loss of revenue of £2 million a year. But the gain this year will be about £4 million because of the retrospection."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 61–2]
I have always understood that even in the Tory Party two and two sometimes make four.

Mr. Amory: That is the figure. [Laughter.] This is a perfectly serious point. I understood the right hon. Member to imply that I had said that £2 million was the total loss involved in this retrospection. I would say that the best estimate we could make at that time was a total loss of £4 million for that period, but I qualified that today by saying that it is a very approximate estimate, and I have said that I think the figure would be substantially more than £2 million but very substantially less than £10 million. If I had to be more precise I would say that it is about £4 million, £5 million or perhaps £5½ million. It is absolutely impossible to say, but the point I am making today is that whether it had been £5 million, £10 million or even £15 million, I should still have reached my decisions on the same grounds—upon what I thought, on balance, was fair.
The right hon. Gentleman raised the question of a warning, and asked what I meant in referring to the nature of the warning given by Ministers in 1955. My right hon. Friend the Paymaster-General referred to that when he said that a warning by Ministers clearly did not necessarily carry with it the same authority as a statutory decision passed by Parliament.

Mr. Douglas Jay: In that case can the Chancellor tell us what was the purpose of giving the warning?

Mr. Amory: I am just coming to that, because I did say earlier this afternoon that the Ministers concerned had given a warning which I thought was relevant and was one of the factors to be taken into consideration. I did take that warning into consideration in reaching the decision I announced at the time of the Budget. What I want to say today is that many other people have taken a view different from mine. I held the view at that time that the warning given by Ministers was sufficiently comprehensive to cover these cases, but many views have been expressed to the contrary.
What I said was that those doubts expressed were among the factors I took into consideration when I reached the decision which I announced on 29th April. I want to say this once more. I still take the view that the statements made by Ministers were relevant to this. I say there is a possibility, at any rate in respect of one of the newer forms taken, that it may not be covered. That is why

I have been willing to give the benefit of the doubt to the subject, and I am certain that that decision is right.

Mr. H. Wilson: The Chancellor has given away what little bit of a case he had left by the remarks he made as he sat down. He has admitted what I thought he would admit—of the three cases covered, the three types of tax avoidance covered, there is doubt about one of the three. Why, then, does he not introduce retrospective legislation in respect of those issues where there was no doubt whatsoever?

Hon. Members: Answer.

Mr. Amory: Because, as I have explained, on balance, in the light of the opinions I have taken into consideration, I am of opinion that it is far better in this case to give the benefit of the doubt to the subject and to have no retrospective element in it at all.

Hon. Members: Resign.

Question put That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 233, Noes 196.

Division No. 160.]
AYES
[7.23 p.m.


Aitken, W. T.
Cole, Norman
Goodhart, Philip


Amery, Julian (Preston, N.)
Conant, Maj. Sir Roger
Gough, C. F. H.


Amory, Rt. Hn. Heathcoat (Tiverton)
Cooke, Robert
Gower, H. R.


Anstruther-Gray, Major Sir William
Cooper, A. E.
Graham, Sir Fergus


Arbuthnot, John
Cooper-Key, E. M.
Grant-Ferris, Wg Cdr. R. (Nantwich)


Armstrong, C. W.
Cordeaux, Lt.-Col. J. K.
Green, A.


Ashton, H.
Craddock, Beresford (Spelthorne)
Gresham Cooke, R.


Atkins, H. E.
Crosthwaite-Eyre, Col. O. E.
Grimond, J.


Baldwin, A. E.
Cunningham, Knox
Grimston, Hon. John (St. Albans)


Barlow, Sir John
Currie, G. B. H.
Grimston, Sir Robert (Westbury)


Barter, John
Davidson, Viscountess
Grosvenor, Lt.-Col. R. G.


Batsford, B. C. C.
Davies, Rt. Hon. Clement (Montgomery)
Gurden, Harold


Baxter, Sir Beverley
D'Avigdor-Goldsmid, Sir Henry
Harris, Frederic (Croydon, N. W.)


Beamish, Col. Tufton
Deedes, W. F.
Harris, Reader (Heston)


Bell, Ronald (Bucks, S.)
Digby, Simon Wingfield
Harrison, A. B. C. (Maldon)


Bennett, F. M. (Torquay)
Dodds-Parker, A. D.
Harrison, Col. J. H. (Eye)


Bennett, Dr. Reginald
Donaldson, Cmdr. C. E. McA.
Harvey, John (Walthamstow, E.)


Bevins, J. R. (Toxteth)
Doughty, C. J. A.
Head, Rt. Hon. A. H.


Bidgood, J. C.
du Cann, E. D. L.
Heald, Rt. Hon. Sir Lionel


Biggs-Davison, J. A.
Dugdale, Rt. Hn. Sir T. (Richmond)
Heath, Rt. Hon. E. R. G.


Bingham, R. M.
Duncan, Sir James
Henderson-Stewart, Sir James


Birch, Rt. Hon. Nigel
Duthie, W. S.
Hesketh, R. F.


Bishop, F. P.
Elliott, R. W. (Ne'castle upon Tyne, N.)
Hill, Rt. Hon. Charles (Luton)


Body, R. F.
Emmet, Hon. Mrs. Evelyn
Hill, Mrs. E. (Wythenshawe)


Bonham Carter, Mark
Errington, Sir Eric
Hirst, Geoffrey


Bowen, E. R. (Cardigan)
Erroll, F. J.
Hobson, john (Warwick &amp; Leam'gt'n)


Boyd-Carpenter, Rt. Hon. J. A.
Finlay, Graeme
Holland-Martin, C. J.


Braine, B. R.
Fisher, Nigel
Holt, A. F.


Browne, J. Nixon (Craigton)
Fletcher-Cooke, C.
Hornby, R. P.


Bryan, P.
Foster, John
Howard, Gerald (Cambridgeshire)


Bullus, Wing Commander E. E.
Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Howard, Hon. Greville (St. Ives)


Burden, F. F. A.
Freeth, Denzil
Howard, John (Test)


Butcher, Sir Herbert
Gammans, Lady
Hudson, W. R. A. (Hull, N.)


Butler, Rt. Hn. R. A. (Saffron Waiden)
Garner-Evans, E. H.
Hulbert, Sir Norman


Campbell, Sir David
George, J. C. (Pollok)
Hurd, A. R.


Carr, Robert
Gibson-Watt, D.
Hutchison, Michael Clark (E'b'gh, S.)


Cary, Sir Robert
Glover, D.
Hyde, Montgomery


Channon, Sir Henry
Glyn, Col. Richard H.
Hylton-Foster, Rt. Hon. Sir Harry


Chichester-Clark, R.
Godber, J. B.
Iremonger, T. L.




Irvine, Bryant Godman (Rye)
Marshall, Douglas
Sharples, R. C.


Jenkins, Robert (Dulwich)
Maudling, Rt. Hon. R.
Shepherd, William


Jennings, Sir Roland (Hallam)
Maydon, Lt.-Comdr, S. L. C.
Simon, J. E. S. (Middlesbrough, W.)


Johnson, Dr. Donald (Carlisle)
Molson, Rt. Hon. Hugh
Smithers, Peter (Winchester)


Johnson, Eric (Blackley)
Mott-Radclyffe, Sir Charles
Smyth, Brig. Sir John (Norwood)


Jones, Rt. Hon. Aubrey (Hall Green)
Nabarro, G. D. N.
Spearman, Sir Alexander


Joynson-Hicks, Hon. Sir Lancelot
Nairn, D. L. S.
Speir, R. M.


Kaberry, D.
Neave, Airey
Stevens, Geoffrey


Keegan, D.
Nicholson, Sir Godfrey (Farnham)
Steward, Sir William (Woolwich, W.)


Kerr, Sir Hamilton
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)
Stuart, Rt. Hon. James (Moray)


Kershaw, J. A.
Noble, Comdr. Rt. Hon. Allan
Studholme, Sir Henry


Kimball, M.
Nugent, G. R. H.
Summers, Sir Spencer


Lagden, G. W.
Oakshott, H. D.



Lambton, Viscount
O'Neill, Hn. Phelim (Co. Antrim, N.)
Sumner, W. D. M. (Orpington)


Langford-Holt, J. A.
Orr, Capt. L. P. S.
Taylor, Sir Charles (Eastbourne)


Leavey, J. A.
Orr-Ewing, Charles Ian (Hendon, N.)
Taylor, William (Bradford, N.)


Leburn, W. G.
Oswald, T.
Temple, John M.


Legge-Bourke, Maj. E. A. H.
Page, R. G.
Thompson, R. (Croydon, S.)


Legh, Hon. Peter (Petersfield)
Pannell, N. A. (Kirkdale)
Thornton-Kemsley, Sir Colin


Lindsay, Hon. James (Devon, N.)
Partridge, E.
Tiley, A. (Bradford, W.)


Lindsay, Martin (Solihull)
Peel, W. J.
Turton, Rt. Hon. R. H.


Lloyd, Maj. Sir Guy (Renfrew, E.)
Peyton, J. W. W.
Tweedsmuir, Lady


Lloyd, Rt. Hon. Selwyn (Wirral)
Pickthorn, K. W. M.
Vane, W. M. F.


Longden, Gilbert
Pitman, I. J.
Vickers, Miss Joan


Low, Rt. Hon. Sir Toby
Pitt, Miss E. M.
Vosper, Rt. Hon. D. F.



Powell, J. Enoch
Wade, D. W.


Lucas, P. B. (Brentford &amp; Chiswick)
Price, David (Eastleigh)
Wakefield, Edward (Derbyshire, W.)


Lucas-Tooth, Sir Hugh
Price, Henry (Lewisham, W.)
Wakefield, Sir Wavell, (St. M'lebone)


Macdonald, Sir Peter
Prior-Palmer, Brig. O. L.
Wall, Patrick


Mackeson, Brig. Sir Harry
Profumo, J. D.
Ward, Rt. Hon. G. R. (Worcester)


McKibbin, Alan
Ramsden, J. E.
Ward, Dame Irene (Tynemouth)


Mackie, J. H. (Galloway)
Rawlinson, Peter
Webster, David


McLaughlin, Mrs. P.
Redmayne, M.
Williams, Paul (Sunderland, S.)


Maclean, Sir Fitzroy (Lancaster)
Renton, D. L. M.
Wills, Sir Gerald (Bridgwater)


McLean, Neil (Inverness)
Ridsdale, J. E.
Wilson, Geoffrey (Truro)


MacLeod, John (Ross &amp; Cromarty)
Rippon, A. G. F.
Wood, Hon. R.


Maddan, Martin
Robertson, Sir David
Woollam, John Victor


Maitland, Cdr. J. F. W. (Horncastle)
Robinson, Sir Roland (Blackpool, S.)



Maitland, Hon. Patrick (Lanark)
Roper, Sir Harold
TELLERS FOR THE AYES


Manningham-Buller, Rt. Hn. Sir R.
Ropner, Col. Sir Leonard
Mr. Brooman-White and


Markham, Major Sir Frank
Russell, R. S.
Mr. Hughes-Young.




NOES


Ainsley, J. W.
Dodds, N. N.
Janner, B.


Allen, Scholefield (Crewe)
Donnelly, D. L.
Jay, Rt. Hon. D. P. T.


Bacon, Miss Alice
Dugdale, Rt. Hn. John (W. Brmwch)
Jeger, George (Goole)


Baird, J.
Ede, Rt. Hon. J. C.
Jenkins, Roy (Stechford)


Balfour, A.
Edelman, M.
Johnson, James (Rugby)


Bence, C. R. (Dunbartonshire, E.)
Edwards, Robert (Bilston)
Jones, Rt. Hon. A. Creech (Wakefield)


Benn, Hn. Wedgwood (Bristol, E.)
Edwards, W. J. (Stepney)
Jones, David (The Hartlepools)


Benson, Sir George
Evans, Albert (Islington, S. W.)
Jones, Jack (Rotherham)


Beswick, Frank
Evans, Edward (Lowestoft)
Jones, J. Idwal (Wrexham)


Bevan, Rt. Hon. A. (Ebbw Vale)
Fernyhough, E.
Kenyon, C.


Blackburn, F.
Finch, H. J.
Key, Rt. Hon. C. W.


Blenkinsop, A.
Fitch, E. A.
King, Dr. H. M.


Blyton, W. R.
Fletcher, Eric
Lawson, G. M.


Boardman, H.
Fraser, Thomas (Hamilton)
Ledger, R. J.


Bottomley, Rt. Hon. A. G.
Gaitskell, Rt. Hon. H. T. N.
Lee, Frederick (Newton)


Bowden, H. W. (Leicester, S. W.)
George, Lady Megan Lloyd (Car'then)
Lee, Miss Jennie (Cannock)


Bowles, F. G.
Gibson, C. W.



Brockway, A. F.
Gordon Walker, Rt. Hon. P. C.
Lever, Leslie (Ardwick)


Broughton, Dr. A. D. D.
Greenwood, Anthony
Lewis, Arthur


Brown, Thomas (Ince)
Grenfell, Rt. Hon. D. R.
Logan, D. G.


Burke, W. A.
Gray, C. F.
Mabon, Dr. J. Dickson


Burton, Miss F. E.
Griffiths, David (Rother Valley)
McCann, J.


Butler, Herbert (Hackney, C.)
Griffiths, Rt. Hon. James (Llartelly)
MacColl, J. E.


Butler, Mrs. Joyce (Wood Green)
Griffiths, William (Exchange)
MacDermot, Niall


Callaghan, L. J.
Hale, Leslie
McGhee, H. G.


Carmichael, J.
Hall, Rt. Hn. Glenvil (Colne Valley)
McGovern, J.


Castle, Mrs. B. A.
Hamilton, W. W.
McInnes, J.


Champion, A. J.
Harrison, J. (Nottingham, N.)
McLeavy, Frank


Chapman, W. D.
Hastings, S.
MacMillan, M. K. (Western Isles)


Chetwynd, G. R.
Hayman, F. H.
Mahon, Simon


Clunie, J.
Harbison, Miss M.
Mainwaring, W. H.


Coldrick, W.
Holman, P.
Mallalieu, E. L. (Brigg)


Collins, V. J. (Shoreditch &amp; Finsbury)
Houghton, Douglas
Mann, Mrs. Jean


Craddock, George (Bradford, S.)
Howell, Charles (Perry Barr)
Mason, Roy


Cronin, J. D.
Howell, Denis (All Saints)
Mayhew, C. P.


Crossman, R. H. S.
Hoy, J. H.
Mellish, R. J.


Dalton, Rt. Hon. H.
Hubbard, T. F.
Messer, Sir F.


Darling, George (Hillsborough)
Hughes, Emrys (S. Ayrshire)
Mitchlson, G. R.


Davies, Ernest (Enfield, E.)
Hughes, Hector (Aberdeen, N.)
Moody, A. S.


Davies, Stephen (Merthyr)
Hunter, A. E.
Morrison, Rt. Hn. Herbert (Lewis'm, S.)


Diamond, John
Isaacs, Rt. Hon. G. A.
Mort, D. L.







Moss, R.
Reynolds, G. W.
Thomas, George (Cardiff)


Moyle, A.
Robens, Rt. Hon. A.
Thomson, George (Dundee, E.)


Mulley, F. W.
Roberts, Goronwy (Caernarvon)
Thornton, E.


Noel-Baker, Francis (Swindon)
Robinson, Kenneth (St. Pancras, N.)
Tomney, F.


Noel-Baker, Rt. Hon. P. (Derby, S.)
Rogers, George (Kensington, N.)
Usborne, H. C.


Oliver, G. H.
Ross, William
Warbey, W. N.


Oram, A. E.
Royle, C.
Watkins, T. E.


Oswald, T.
Shinwell, Rt. Hon. E.
Weitzman, D.


Padley, W. E.
Short, E. W.
Wells, Percy (Faversham)


Paget, R. T.
Silverman, Julius (Aston)
Wells, William (Walsall, N.)


Paling, Rt. Hn. W. (Dearne Valley)
Silverman, Sydney (Nelson)
West, D. G.


Pannell, Charles (Leeds, W.)
Simmons, C. J. (Brierley Hill)
Wheeldon, W. E.


Parker, J.
Skeffington, A. M.
White, Mrs. Eirene (E. Flint)


Paton, John
Slater, Mrs. H. (Stoke, N.)
Wilkins, W. A.


Pearson, A.
Slater, J. (Sedgefield)
Willey, Frederick


Peart, T. F.
Smith, Ellis (Stoke, S.)
Williams, David (Neath)


Pentland, N.




Plummer, Sir Leslie
Sorensen, R. W.
Williams, Rev. Llywelyn (Ab'tillery)


Popplewell, E.
Soskice, Rt. Hon. Sir Frank
Williams, Rt. Hon. T. (Don Valley)


Price, Philips (Gloucestershire, W.)
Sparks, J. A.
Willis, Eustace (Edinburgh, E.)


Probert, A. R.
Spriggs, L.
Wilson, Rt. Hon. Harold (Huyton)


Proctor, W. T.
Stewart, Michael (Fulham)
Woodburn, Rt. Hon. A.


Pursey, Cmdr. H.
Stones, w. (Consett)
Woof, R. E.


Rankin, John
Sylvester, G. O.
Yates, V. (Ladywood)


Redhead, E. C.
Taylor, Bernard (Mansfield)



Reid, William
Taylor, John (West Lothian)
TELLERS FOR THE NOES




Mr. J. T. Price and Mr. Deer

Motion made, and Question proposed, That the Clause stand part of the Bill.

Mr. H. Wilson: I beg to move, That the Chairman do report Progress and ask leave to sit again.
In the atmosphere of the Committee following the debate, I am sure that we would make far more progress if the Chancellor of the Exchequer were to think again about what has been said. There is clearly great anxiety in the Committee about the Chancellor's action, about his awn personal position in regard to what has happened, and in regard to the unspecified pressure that has been put upon him. It would be better for him and for the progress of the Bill if he would agree to leave the matter here for the evening and to consider the whole matter further and decide whether he could not come forward between now and Report with effective measures to deal with the problem that has been so clearly illuminated in the debate.

The Chairman: I could not accept the Motion which the right hon. Gentleman has moved. We have already been sitting for four hours and only one Amendment has been moved. It would be better to make some progress before I am asked to accept a Motion to report Progress.

Mr. Wilson: I think it was on the morning of 17th November, 1955, that this question was first raised. I do not think it has ever been finally resolved whether the acceptance of this Motion, which is entirely within your jurisdiction, should or should not depend upon the

amount of progress made. It could easily be argued that we should have made a good deal more progress if the Chancellor had answered some of the questions put to him. If that is your Ruling, Sir Charles, I suggest that if we had altered the timing of this debate, as we could have done, and had left Clauses 13, 14 and 15 until today, we could have made progress upon them; and then, in the light of what I have brought to your attention, you might have been prepared to accept the Motion I have moved.

The Chairman: It might have been different, but the point still remains that it is difficult to report Progress without having made any progress at all. There is so much of the Finance Bill still to do that I cannot accept the Motion.

Mr. Hale: On the Question, "That the Clause stand part of the Bill," new considerations arise. I was agreeably surprised on my first visit to this Committee for some days at what took place. I was not surprised at the brilliance of the speeches made by my hon. Friend the Member for Islington, East (Mr. E. Fletcher), but I have been rather shocked at what has happened in the last four hours. You referred, Sir Charles, to the fact that four hours had gone by and we had considered only a single Amendment; but there were some three Government Front Bench speeches. We started with an appeal from the Leader of the Liberal Party to cut morals out of the Budget. When I joined the Liberal Party my leader was David Lloyd George, and he was conducting a campaign to bring


morals into the Budget. I was only eight years old then, but I gave as much support as I could.
Then we had an appeal by the Chancellor of the Exchequer to keep figures out of the Budget. When one of my right hon. Friend's mentioned £6 million, the right hon. Gentleman said that that was the right figure. When my hon. and learned Friend the Member for Kettering (Mr. Mitchison) said £4 million, the right hon. Gentleman said that was an accurate figure. He finally said, "Anyhow, I do not know what the figure is." One appreciates that when one has gone into the various varieties of this particular swindle in which the right hon. Gentleman is acting as an accessory after the fact.
Let us be plain about the Clause. We can call dividend stripping "a romantic development of British industry," but it is a method by which wide boys are endeavouring to mulct the Exchequer of money to which they are only entitled because the regulations have been made with such lack of care as not to cover the particular point. Everyone knows that in the making of financial regulations we are bound to make mistakes. Everybody also knows that the tax-avoidance organisation is the most remunerative of British industries. The position is rather like the old battle between naval guns and steel. As we lengthened the range of the guns and widened the bore thicker steel was produced, and so on.
Today we had a financial statement from the Chancellor of the Exchequer which was perhaps the most remarkable ever made in history. He said, "I had arrived at certitude but then I arrived at doubt, and on balance I took the view that doubt should prevail." If the right hon. Gentleman feels that I am being unfair I will give way, but I must say that that is how I understood him when I listened to him. At one point in our discussion he was clear in his mind. "Then," he said, "I saw my friends outside." He did not tell us who they were, but I am sure they were not a deputation of Quakers. I have no doubt that the right hon. Gentleman's friends are all very reputable and excellent people, but this is not a matter on which he would take the view of a maiden aunt. It is a matter of considerable complexity. Indeed, I doubt whether a more complex Clause has ever appeared in any Budget. That is a fairly strong statement.
When I read the Clause for the first time I had in mind the fact that I had long planned to write a book on unsolved mysteries of history. I hope to start some time, and anyone who offers an advance payment will accelerate the procedure. There would be Chapter I, Who Was Junius? Chapter II, the Mystery of the Man in the Iron Mask. Chapter III, What does Clause 4 of the Finance (No. 2) Act, 1955, as amended by Clause 16 of the Finance Act,—if it becomes an Act—1958, varying a whole series of Sections of other Finance Acts, really mean? Nobody knows. The curious thing is that we know the evil with which it is sought to deal and we could all point to reasons why it fails, but no one is able to say precisely what the Clause does. The very purpose of the amendment proposed in this Bill is an amendment designed to remedy the mistakes made in the Act of 1955.

Mr. Page: We are not on an Amendment; this debate is on the Motion, "That the Clause stand part of the Bill."

Mr. Hale: How far that little candle throws its beams
Here is lucus a non lucendo. The Clause says:
Section four of and the Third Schedule to the Finance (No. 2) Act, 1955 (which make provision as to the treatment of certain dividends paid to any extent out of accumulated profits), shall have effect subject to the amendments specified in subsections (2) to (4) of this section.
It is to the amendments specified to which I am applying my mind.

Mr. Page: I am obliged to the hon. Member for clearing up one of his mysteries.

Mr. Hale: Yes, but only the first sentence of that subject. If the hon. Member had waited a few minutes longer, it is possible that he would even have understood what I had to say. Possibly, but it is not a matter of certitude at all.
There is a new Clause on the Paper in the names of myself and the hon. Members for Salford, West (Mr. Royle) and Jarrow (Mr. Fernyhough): Computation of profits of business. I have no doubt that the Chancellor was reading that with very pleased interest over his oats this morning. In the first speech he made today he


rather tended to reply to that new Clause and rather intimated that he is not going to accept it. That actually would be an amendment to Clause 16, and the only reason why it was not tabled as an Amendment was that it is so long and complex that the procedure is rather like driving nails in the Hindenburg statue, one has to have them all over the place and a lot of them, and we thought it would be better to table it as a new Clause.
I want to refer to that new Clause because the Chancellor did reply to it. He said he could not think of having any sort of procedure by which the Inland Revenue should be entitled, subject, of course, to the jurisdiction of the courts and full legal protection of the citizen, to say that because this device was for the collection of tax it would ignore it. He says that procedure is quite impossible, but such a device existed in the late years of the last war and the early years of the last peace, and it worked very well. It worked well, and it may be that no provisions in detail could have produced the effect which it produced.
I want to cover a little history on this form of tax evasion. Years ago my wife and I used to spend our vacations on a tiny island off the coast of Donegall, the Island of Inishcoo, out in the Atlantic. It was an historic island because General Napper Tandy made his most famous landing there and, two and a half hours later, made his embarkation from the island. It is a fascinating thought that it was from there that St. Columba came to teach the savage tribes of Britain and, but for the work of St. Columba, we might not have tax dodgers now. In a sense, the process of commerce has gone on and, on the Island of Inishcoo, we come across the Boyles and Macdonalds who used to have a prosperous time there in the sea salmon fishing season. The salmon used to come from near the Gulf of Mexico round the coast of Scotland and these fishermen, with their gallant seafaring endeavour, were able to get a measure of revenue for the island.
7.45 p.m.
It is an interesting point, as indicating the prescience, knowledge and judgment possessed by these charming and eminently edible fish, that we observed they were nearly always seen off the coast at a time which indicated that they

had left American waters immediately following a speech on peace by Mr. Foster Dulles. These hardy islanders, keeping observation on the weather from the cliff and watching the current, would be listening to the wireless and hearing Mr. Foster Dulles, and they were able to make a passably good income, but the real trouble is that Inishcoo is a long way from Dublin, which is the ordinary centre of Irish trade and commerce. It is so far away that it takes nearly as long to travel from Burtonport to Dublin as for the Minister of Labour to prepare an impromptu outburst of honest indignation against the Leader of the Opposition, and that is a very long time.
The result was that that very prosperous fishing industry was whittled away by a limited company, which could use lorries to convey the fish to Dublin and sell it there at high prices. I hope I am making myself clear and showing that what I am saying is relevant to this Clause. I am talking of course—[An HON. MEMBER: "A lot of nonsense."] On the contrary, Clause 4 of the 1955 Act is very long. Subsection (8) says:
'Company' includes anybody corporate, but does not extend to a company not resident in the United Kingdom.
So we have finished with Ireland now and got
a company not resident in the United Kingdom.
which has made a very large profit on salmon for a great many years. In the words of previous Chancellors, it ploughs back those profits. In other words, it acquires a very high capital value by not distributing profits. The simple view of the islanders of Inishcoo was that they were being swindled, because the climate there is such that businessmen are subject to all kinds of temptations. If they had not ploughed back profits, we might have had a balance of payments crisis with Monaco, and perhaps it was as well that the money remained in Dublin.
Everyone but Chancellors of the Exchequer has known what was going on for the last 40 years. This sort of thing is commonplace and every citizen except the Chancellor of the Exchequer knows about it. In the ordinary economic development of our institutions, businessmen used to deal in goods, but that involved a considerable amount of risk and capital. That is a Jack of Newbury, and there was the possibility of losing


money. They got over that by the invention of the limited liability company.
It was then pointed out that even through a limited liability company one might lose capital, and they proceeded to the deferred share method whereby Consols could be
held by people who put up the smallest
amount of money. In that way they could insulate themselves. They got over the difficulty of losing money on goods by selling goods which did not exist to people who did not want them but who thought that on the whole they might make money by buying them in the future. The whole romantic story of modern adventurous industry began to expand and develop, and we reached the stage when the great genius came down and expounded the next step.
I do not know whether the Assistant Postmaster-General was here in 1945. Perhaps if he was he will recall the story told by a Tory Member in the course of the Budget debate about three businessmen who were arguing who should pay for a meal. One said that he would pay because he was paying such a high rate of Surtax that it would cost him only 2s. in the £. The second man said, "I am paying the maximum excess profit taxation and I can get it for nothing." The third said, "Give me the bill. I am working for the Government at 10 per cent. cost-plus and I can make money out of it."
The great genius said, however, that the thing to do was not to buy goods at all but to buy losses; if one made any money in any legitimate enterprise, one saved the whole of the taxation on it by buying a loss. Indeed, losses were advertised at such a rate that buying them became almost prohibitive. It was not so much because of legislation as because of competition to buy losses that their prices went up.
Next came the great genius who, working in a small way, said, "We have got it all wrong. We should buy profits." They asked how that was done and he said, "If you buy cum-div you are all right. You know that the dividend has been declared and that it has not been distributed, and you save the tax on the dividend as an item of capital, because it will not rank for your tax as income. In the value of the shares you buy capital plus dividend minus tax, and you do not

have to pay any tax on that dividend." Then there was a search all over Britain for companies which had accumulated reserves of dividend on which tax had been paid, and one found companies on which one paid 100 per cent. of purchase price but only 20 per cent. of it represented capital and 80 per cent. was tax-free.
Surely the Chancellor knows about it. I do not want to be discourteous to the Chancellor, whom we hold in considerable regard and who has had rather a rough passage today, but surely he knows about this. We have had a lot of experience of Tory Chancellors in the last two-and-a-half years, and this is our experience of the sort of mental atrophy which starts from the moment they go into the Treasury. There is something in the Treasury which has the petrifying effect which is seen at Matlock; the steady application of moist atmosphere produces cranial degeneration and mental atrophy which come out in the presentation of these schemes. I am not trying to be discourteous for a moment. Indeed, I am trying to hold back a wealth of criticism.
Suddenly the City of London found that they had this great method of producing money virtually without much industry. There were more belly laughs in the City of London that day than since the day somebody invented the joke, "She was somebody's daughter, but—". A new cheerfulness came about.
I want to deal with what has happened since. First we were told by the Government, "There is no question about it; we will deal with it. We will start by passing some limited legislation but we will give a firm and formal warning that if there is any more of this, we shall deal with it." What has happened? The Clauses of the Bill do not touch it and the Amendments do not touch it. To start with, we have excluded all the companies outside the United Kingdom. All a man has to do now is to look for a company in Dublin. He finds the product of the labour of my fishermen in Inishcoo, capitalises it over about eight years, buys it up and gets his money back from the Government here. It is true the tax has not been paid, but he gets a capital asset not liable to taxation and a substantial financial benefit by that process.
Secondly, we have excluded debentures; these provisions apply only to normal profit-participating shares and debentures are excluded. The naive theory in the Chancellor's mind is, "Debenture interest is paid regularly and it will not apply to debentures." The wise guys then stop paying interest on debentures. They proceed to accumulate them, and one can now buy debentures with six or seven years' accumulated profit. So it goes on.
I do not want to detain the Committee on this, but I would say that in listening to the Chancellor's argument this afternoon I was once again reminded of the most lucid and clear dictum of the late Sergeant Arabin, which appears in a legal collection called "Arabiniana," which is perhaps almost unknown in these days. He said that if ever there was a case in which it was made clearer than in this case that this case was not that case, that case was this case. Listening to the explanations of the working of the Chancellors mind, I came to the conclusion that Sergeant Arabin had come to life again and that we were about to be regaled with some of those dubious propositions.
It is true—and everyone knows it—that tax dodging is a great industry. It is true—and everyone knows it. Let us be fair; Lord Chief Justice Hewart's dictum still stands that if you can get out of paying tax you are a fool if you do not.

Mr. James Callaghan: Lord Chief Justice Atkin said it.

Mr. Hale: He may have said it, too, but I am certain that Lord Chief Justice Hewart said it. Indeed, from what I remember of him, it is precisely the sort of thing which he would say.
I do not object to that. The most reputable company will call in its solicitor and its accountant on any deal and will say, "Advise us of the taxation implications of this." Why should not it? The solicitor and the accountant will say, "If you do it the other way you can get out of tax." Why not? If I am being paid to advise a company, then the question of my political views is not in issue at all; I am being paid for my advice. But it is the job of the Chancellor of the Exchequer to stop it. There is only one

way to do it, and that is the way which he has rejected this afternoon, for once without listening to the arguments. I hope that when he has heard the arguments, he may change his mind again, because there are occasions when it is a virtue to change one's mind.
On this occasion he has said that he is not prepared to have any method by which the tax authorities can say that here is a transaction which in their view is blatantly devised solely for the purpose of avoidance of legitimate taxation. We say that we reject that doctrine, and we shall proceed as if it had not been made. If one can appeal to the High Court, one can say that it is a perfectly fair transaction and one can explain to the High Court the reasons why one was compelled to enter into that transaction as an ancillary part of some other business. Unless they can do that, there is no reason for saying that the people who set out to engage in a transaction carefully and coolly calculated primarily for the avoidance of tax should have any help from this House. Certainly they should have no help from the Chancellor.
I say to the Chancellor that although this is legitimate, it is a swindle. Of course, there are many forms of swindle which are not liable to prosecution. In the old days we did not prosecute for false pretences, and I am personally inclined to agree with that. I do not think the criminal law should be used in cases where it can be avoided. I do not believe in making criminals if it can be avoided. I believe that to be an eminently liberal principle. Of course there are swindles. Time after time we hear a judge say to the accused in the dock, "You have not actually transgressed the criminal law in this transaction but you have behaved like a crook and I hope that you leave this court with a very unpleasant conscience." "These are the people", the Chancellor said, "who on balance of doubt, having discussed the matter with my aunt and a couple of cousins and friends outside, I have come to the conclusion should not be interfered with."
8.0 p.m.
It is a monstrous proposition, and it is made more monstrous by speech after speech today which says, "If you are dishing out the boodle retrospectively our hands will be retrospectively held out,


but if you suggest that someone should pay an amount which he owes and which he is endeavouring to contend he does not owe because he was provided a whole façade of ingenious devices to avoid payment, I say that, having thought over the matter, on a slight balance of doubt I shall let them get away with it. I shall not deal with this. I shall instead adversely affect the financial situation of the average citizen. I am going to weaken the Budget." Heaven knows how many times in the last few days we have been told that we cannot have a concession costing £100,000 because it would be inflationary or it cannot be done. Now, we are asked to shovel out £4 million of public money to a set of crooks merely because they have managed to find a legal way of avoiding the tax laws of the country.

Mr. Douglas Houghton: My hon. Friend the Member for Oldham, West (Mr. Hale) has posed with wit and skill the classic dilemma of all taxation systems. That is, how to check devices for avoidance of tax. This is what we are talking about on Clause 16.
The Paymaster-General suggested a few moments ago that we were, perhaps, confused in our minds between tax evasion and tax avoidance. There is no confusion in our minds at all about it. The term "tax dodger" can be applied to the tax avoider. The tax evader is a crook. When we talk about tax dodgers, we are talking about tax avoiders.
The right hon. Gentleman said that those who get married just before the end of the Income Tax year to get the advantage of the married man's personal allowance, and, probably, other benefits also, for the whole of the tax year, are indulging in a form of tax avoidance. If it is, it is a very mild form of it. What we mean by tax avoidance, at least in condemning it, are those artificial devices the purpose of which is wholly or mainly tax avoidance. People usually do not get married mainly or wholly for the purpose of tax avoidance. If they do, it is a heavy price to pay. The people who get married just before 5th April are getting married anyhow, but the tax dodgers indulge in activities which they would not undertake anyhow, apart from their purpose of tax relief or tax avoidance.
I know all the difficulties about this problem. They have been discussed comprehensively and thoroughly by one Royal Commission after another and the more recent Radcliffe Commission wrote a whole chapter on the subject of tax avoidance, defined it, posed the possible remedies for it and came rather weakly to the conclusion that as the Inland Revenue apparently did not want it any other way, we should carry on as we are.
This kind of debate on the activities of the sophisticated taxpayers enrages the great mass of the ordinary taxpayers. They feel that these fiddles and dodges are not only a reflection upon the honour of those who indulge in them, but are having their effect upon the amount of tax that other people pay and the spirit in which they pay it, which is very important in any taxation system.
Clause 16 is rendered necessary as a check on tax avoidance because the efforts made in 1955 to close the loopholes were defective in some respects and ineffectual in others. The Clause deals with the respects in which the 1955 legislation was defective. Clause 17 deals with those respects in which it was ineffectual.
There has been no dispute on either side of the Committee that what Clause 16 seeks to check is a trick. The then Financial Secretary to the Treasury, now the Minister of Housing and Local Government, described dividend stripping as a trick; and those who perpetrate a trick are tricksters. This Clause is a further attempt to check the activities of tricksters.
Indeed, I go further and say that the enlargement of the check upon "acting in concert" is another attempt to stop conspiracy. That really is what "acting in concert" means. When a safeguard was put in Section 4 of the
1955 Act to prevent evasion of the provision that the acquisition of more than 10 per cent. of the shareholding would bring a person within the conditions of the Section, provision was made to guard against the possibility that by acquiring 5 per cent. each, two persons acting in concert could remove themselves from the scope of the Clause.
I believe—not all people will share this view and apparently not the Leader of the Liberal Party—that there is some


morality in one's sense of duty towards the taxation system. We pride ourselves on having an efficient tax system fully supported by the co-operation of the great majority of taxpayers. We proclaim to the world our astonishing willingness to bear such heavy burdens with such a high sense of duty. The need for a Clause of this kind is a sign of our failure to live up to the standards of integrity that we claim to observe in our tax affairs.
The great mass of ordinary people may not be able to judge on the refinements of the avoidance techniques but, on the whole, they know what is right and what is underhand. They can recognise in many of these tax avoidance devices something underhand—a put-up job, something which is being done for private and personal gain to evade the proper obligations under our tax system. For my part, I regard the need for this Clause and the Clause which follows it as an affront to honourable taxpayers throughout the country. If we have much more of this, it may well impair the social fabric of the nation and diminish its confidence in our taxation system.
One of the things that is cardinal in tax administration is secrecy. The Chancellor of the Exchequer will never answer Questions in the House on the personal affairs of individual taxpayers or companies. When the public want to know how it is that some people get away with things, if they ask whether certain people are getting away with things, the Chancellor says, "I cannot discuss the affairs of individual taxpayers." So the general mass of the public have to rely on the tax machine's doing its job in secret without their inspection or their right to intrude upon the affairs of taxpayers and to make discoveries for themselves. In those circumstances, it is of fundamental importance that public confidence in the taxation system should be fostered and strengthened.
Yesterday, we were asking for some modest concessions for various types of taxpayers, personal reliefs for those living on small incomes, for those who employ housekeepers, those who maintain dependent relatives. The Financial Secretary rejected all our pleas for concessions, yet I would assert that through the depredations

of the tax avoiders to be affected by this Clause, before 1955 began the check, and now before this Clause completes the check, if indeed, it does complete it, more money has been lost to the Revenue than would have been needed to pay for a very large part of the concessions we were asking for yesterday and were refused.
On the morality of tax paying, I came across a speech by a one time Member of the House of Commons who was greatly honoured by both sides, Mr. Lees-Smith. On 1st July, 1936, he made a speech following declarations by the then Chancellor of the Exchequer of determination to check tax avoidance, and threatening, if necessary, to introduce retrospective legislation to deal with it. Referring to the Chancellor's speech, Mr. Lees-Smith said that he took it to mean that
to devise by skilful methods highly artificial arrangements by which you find a loophole in the law, which amounts to some dodge or trick by which you can avoid Income Tax, and yet because of that loophole not get caught in the meshes of the law, may be legal, is not good citizenship, and is not proper and decent, and ought not to be encouraged in this country."—[OFFICIAL REPORT 1st July, 1936; Vol. 314, c. 443.]
Those are sentiments which all right-minded people throughout the country would endorse.
I know that the Royal Commission said that there would be difficulty in laying down any kind of moral code in this connection, but right hon. and hon. Gentlemen opposite represent those who claim to play the game; they represent those who declare that some things are not done. They are those who claim that laws and restrictions are not necessary to govern the behaviour of those who have had the right sort of bringing up. So it is not from these benches on this side of the Committee that this kind of protest should be coming and reiterated time and again.
It is right hon. and hon. Gentlemen opposite, by the traditional superiority of their breeding, and having long enjoyed all the privileges of the governing class, who should be denouncing these nefarious activities. But no. They join the Leader of the Liberal Party and say, "Let us keep morals out of this tax business. Is it within the law? If so, it is all right, and until the Chancellor takes steps to check it, we shall continue our practice."
The question which this Clause poses
afresh is: how are we to deal with these activities? What is the most satisfactory and the most acceptable way of applying proper checks to abuses? Because there is no doubt that there are abuses, and they have been denounced in very strong terms by successive Chancellors over the years.

8.15 p.m.

Mr. Nabarro: I am intrigued by the hon. Gentleman's argument, as always, with his copious knowledge of tax matters. Would he define what is his attitude and the attitude of his party towards the deliberate purchase by one company of a loss forward for Income Tax purposes in another company? Does he regard that as highly immoral? Does he regard that as tax avoidance? Does he regard it as tax evasion? Or does he regard it as a moral and proper recourse in appropriate circumstances?

Mr. Houghton: It would be difficult for me to answer a hypothetical question like that without knowing the facts and the circumstances of the case concerned.

Mr. Nabarro: There are often widely differing facts and circumstances. It may be a transaction involving a very proper and legitimate vertical combination between businesses habitually associated with one another. It may be purely a financial transaction to take advantage of the Income Tax loss forward. Who is to decide? Who is to be the arbiter as to the fundamental reason for the transaction? Would the hon. Gentleman answer that question?

Mr. Houghton: That is the point I am coming to.

Mr. Nabarro: Good.

Mr. Houghton: Had the hon. Gentleman given me time I would have replied to his first question. I would say this, that if that or any other transaction has as its purpose wholly or mainly tax avoidance then it is wrong.
Next, the hon. Gentleman asked me who should be the arbiter. That is the question that I am coming to now, because one can take differing views. The course we are following in this Clause and in Clause 17, in accordance with the traditional practice, is specific legislation to deal with a specific abuse. That is one

way. The law is altered. Those who claim that they will act within the law, but only within the law, can say, "We will change the law, and we will check abuses that way."
Whether that alteration of the law shall be retrospective is another aspect of the problem. One can follow the course of specific legislation to deal with abuses and at the same time lay down the principle that in no circumstances should the law be changed retrospectively. Or one can lay down, without being absolutely emphatic about retrospective legislation, that it should be utilised only when the circumstances fully justify it.
We will leave that. This is the method we are following now, that is to say, a specific abuse is to be dealt with by legislation with or without retrospective effect.
There are other ways, and the Royal Commission examined some of them, in other countries. This difficult question whether a tax avoidance device has as its purpose wholly or mainly tax avoidance is a matter which is referred to an independent tribunal by the tax authorities for it to decide whether the transaction is a legitimate one, and whether the tax avoidance is only incidental to some other purpose or whether it is the main purpose.
In our own case of the Excess Profits Duty and later with the Excess Profits Levy we had an umbrella Clause. In the final Report of the Royal Commission dealing with those duties, it was quoted:
A person shall not for the purpose of avoiding payment of Excess Profits Duty enter into any fictitious or artificial transaction or carry out any fictitious or artificial operation…
That Clause has never been written into the general taxation law either for Income Tax or Surtax, but it was continued in the Excess Profits Levy legislation, if my memory serves me rightly. That is another way. This could be written into the whole code of Income Tax and Surtax, leaving the Commissioners of Inland Revenue to be the first judges on this issue, and providing opportunities to go to an independent tribunal in the event of dissent from the judgment of the Commissioners.
There is the course, as suggested by my hon. Friend the Member for Oldham, West and several of my hon. Friends.
which is embodied in a proposed new Clause entitled "Computation of Profits of Business" on the Notice Paper. It provides that where there may be a mixture of genuine commercial transaction with the purpose of tax avoidance the Commissioners of Inland Revenue shall have power to decide fairly the actual commercial consequences of the transaction. That is an attempt to adjudicate between the tax avoidance element and the genuine business transaction in any operation.
The Inland Revenue, in evidence to the Royal Commission as reported in paragraph 1027 of its Report, apparently seemed to be content with the methods we now employ. In the last sentence of that paragraph, the Inland Revenue says that it did not think that the introduction of some general anti-avoidance provision was desirable or necessary. But I see that on the Notice Paper there is an Amendment in the name of a number of hon. Members opposite which seeks to distinguish between the genuine transaction, which might be caught in the tax avoidance Clause, and the artificial transaction. They wish to provide for the Commissioners to determine that a certain transaction is a genuine one and should not suffer the penalties otherwise imposed upon it by the Bill.

Mr. Nabarro: Which is that Amendment?

Mr. Houghton: It is the Amendment in Clause 17, page 12, line 41, to add new subsections (3) and (4). The name of the hon. Member for Kidderminster (Mr. Nabarro) is among those appended to that Amendment.

Mr. Nabarro: In fairness, there are two other Amendments to that Clause to which my name is not appended. I wanted to be certain that the hon. Member was referring to the Amendment to which I have put my name.

Mr. Houghton: I beg the hon. Member's pardon. I am sure that he wants to be quite sure to which Amendment his name has been attached.
This Amendment requires the Commissioners to decide which is the artificial device and which is not. That is the same thing the other way round, which suggests that hon. Members opposite are coming to the view that a method of

checking avoidance, other than specific legislation, is desirable in certain circumstances.
Finally, there is the suggestion of my right hon. Friend the Member for Huyton (Mr. H. Wilson) that where the Chancellor finds that an abuse is gathering momentum and he thinks it desirable to stop it, he should have power to ask the House of Commons for an Order to check the abuse pending legislation in the Finance Bill later. That is an alternative which would apply the check when the abuse becomes plainly visible. Here, I endorse something which my hon. Friend the Member for Gloucester (Mr. Diamond) said about the 1955 Section, because the second Finance Bill in 1955 was quite fortuitous. The October, 1955. Budget was absolutely fortuitous from the point of view of checking dividend stripping.
The major purpose of the Budget then was not to stop tax avoidance, but to stop the rot caused by the run on our reserves. Indeed, in April, 1956, the Chancellor said so, and the then Financial Secretary to the Treasury said, on 8th November, 1955, that:
This trick is at present perfectly lawful and it has just begun to be exploited on a really big scale. If we waited until the next Finance Bill the loss of revenue in the interval would exceed six figures. I am not prepared to stand by and see the Revenue milked like that."—[OFFICIAL REPORT, 8th November, 1955; Vol. 545, c. 1665.]
What would the Chancellor have done had he not been able to utilise the agency of an autumn Finance Bill in 1955 to check an abuse which was then said to be exploited on a big scale and which, if he waited until the next Finance Bill, would involve the Revenue in heavy loss? This last suggestion is an attempt to meet the loss of revenue which would be incurred on account of delay in taking measures to check tax evasion devices.
We leave the Clause with a load still on our minds. We have not yet found the answer to this recurring problem, which excites passions, which leads to lack of confidence in our taxation system, which impairs the morale of the taxpaying public, and which is thoroughly bad from a social as well as a fiscal point of view.
An opportunity might be taken at a more convenient season than debates on the Finance Bill to discuss the fundamental question of how we are to administer


our taxation system and ensure a reasonable observance not only of the law but the spirit which should underline legislation which lays burdens on the people in order to sustain the country in its defence, in its social services, in its education and in all the other services which go to make up the life of a civilised community.

Viscount Hinchingbrooke: This debate has been going on all day and I do not usually like to intervene in a debate when I have not heard the whole of the preceding speech and all that went before on this Question, "That the Clause stand part of the Bill," but I heard a great deal of the arguments earlier in the day, and it is clear that we are now continuing what was said upon certain Amendments to the Clause.
I have crossed swords before with the hon. Member for Sowerby (Mr. Houghton) and no doubt I shall do so now. I see the situation from a completely opposite point of view from that of the hon. Gentleman and his hon. Friends. I think that taxation today is at such a high level that, whether people are justified or not, they will go on taking every possible means to escape its consequences. It is no use the House of Commons continuing to pursue a vendetta against those people. We shall only become increasingly a laughing stock not only in their eyes, but also in the eyes of all those who think that the weight of taxation today is such that they are justified in taking every possible means of avoiding the consequences of the law.
I am specific in my words. I think that tax evasion, which I understand is an illegal device, is to be deplored and always should be deplored by every hon. and right hon. Member of this Committee. But there is a sharp distinction between tax evasion which, if it is spotted by the Commissioners of Inland Revenue, may be the subject of a case before the courts as a criminal charge, and tax avoidance. For tax evasion the law can take its course. We are not concerned with that in this Committee. The House of Commons passes laws and then it is up to the other authorities to take people in charge if they evade them.
Tax avoidance is an entirely different matter. I hold the view that many people who are indulging in many of these activities are wholly justified

because of the intolerable weight of taxation forced upon the country by the Governments since the war, and not least by the Government of the present day.

8.30 p.m.

Mr. Mitchison: I am much obliged to the noble Lord for giving way and I hope I have not interrupted his eloquence. This Clause is not concerned either with tax avoidance or with tax evasion. It is concerned with collecting from the Revenue a sum of money to which morally they were by no means entitled.

Viscount Hinchingbrooke: The moral question is the question at issue. This Committee is incapable of defining that when it comes to financial matters. We are capable of making a law which has to be observed, and if people do not observe it they must come before the courts and take the consequences, but this wholesale moralising by the Labour Party is a thing which will increasingly bring Parliament into contempt if it is continued.
In the speeches today we have heard all kinds of phrases. The right hon. Member for South Shields (Mr. Ede) talked about warnings contained in Government statements. The hon. Member for Jarrow (Mr. Fernyhough) talked about the spirit of the law. What on earth is the spirit of the law unless it is the spirit of his own thinking when he is in some inner Socialist conclave planning what to do to bring a reign of financial terror to the country in five years' time. What is the spirit of the law? I should like to have a definition of it.
I deplore the whole business of Government exhortation ever since it became a current political device. I think we have only suffered indignities from it, and I hope to see it soon brought to an end. I hope that the present Chancellor of the Exchequer is eschewing these methods not only in his public speeches but in his legislation.

Mr. Hale: Morals?

Viscount Hinchingbrooke: It is on the basis of these exhortations, which have been delivered at various times by Chancellors of the Exchequer, that the Socialist Party is now erecting the theory that it is correct, honourable, just and wise to introduce retrospective legislation to catch up with the public non-obedience


to these dictates issued by right hon. Gentlemen, on whatever side of the House of Commons it may be.
There is also the other point of the imprecision of these warnings, which has been referred to on this side of the Committee this afternoon. How on earth can we expect to catch up with financial transactions and reclaim the tax from those people who have carried out transactions on some Government statement which was imprecise? It leaves every kind of device unprovided for and, under the cover of this, people will do what they will do, and good luck to them I say.
The hon. and learned Member for Northampton (Mr. Paget) talked about a requirement for blanket legislation. He said there must be a general statement issued, or some legislation of a comprehensive nature introduced and passed by Parliament to deal with anybody who adopted any kind of device for escaping from the consequences of taxation—doing, in fact, what learned judges in the courts have said was permissible and legal, and if they used the phrase "honourable" I am in no doubt that they were correct in using it. They have said on many occasions that a man is entitled to arrange his affairs so as to escape the consequences of taxation, but not according to the hon. and learned Gentleman, who wants blanket legislation which will cover all so-called past misdeeds. However, there he stops. He comes to a point when he reaches the criminal law, the branch in which he is involved, and he quotes the great occasion when Stafford was brought to trial. He says that if a man is apparently about to commit a crime, it must be quite clear what the law is; he must not suffer death before it has been made clear that death is a penalty for the crime which is about to be committed. But when it comes to financial legislation and fines, which are one form of penalty applied in the courts, and applied by the Chancellor of the Exchequer and the Inland Revenue now, the hon. and learned Gentleman says, "No, a different principle must prevail".

Mr. Hale: I did not want to interrupt the noble Lord in the full spate of his oratory, perhaps for fear of being submerged, but when he asks, "What is

the spirit of the law?", I would remind him that Montesquieu wrote under precisely that title, "L'Esprit des lois", on the spirit of law in general; Rousseau wrote on the spirit of political law, and Grotius wrote about the spirit of international law, and all of them are held in very high esteem internationally as writers, and the first and the third in almost universal esteem.

Viscount Hinchingbrooke: They may all have written about the spirit of the law, but my complaint is that if the spirit of the law is interfered with people will begin to conceive of other spirits of the law in an opposite sense to that meant by partisan Members of the House of Commons and will begin to break it more than they have previously been doing. Do not let us make the mistake of going out too far on this limb in the House of Commons because we draw increasing contempt upon the House in the process on the part of ever-increasing and ever-widening sections of the community.
My right hon. Friend the Member for Blackpool, North (Sir T. Low) suggested a means by which swift action could be taken when it was found that forms of taxation avoidance were developing on a wide scale which Parliament, as it proceeded to look at them and increasingly took them into account, began to think were undesirable. I agree with my right hon. Friend. I do not think he will object to my saying that I gave him the idea which he produced this afternoon.
It is, perhaps, in these days very wrong to have to wait a whole year for another Budget and another Finance Bill before some of these processes are followed up. I join with my right hon. Friend in hoping that the Government will look at the idea of introducing as soon as it becomes manifest that a practice is becoming undesirable—that is the basis of all legislation in this House and in every other civilised country in the world—a short, sharp Ways and Means Resolution, to be followed swiftly by a one-Clause Finance Bill, the Second Reading of which could obviously be taken formally because the debate would have taken place on the Ways and Means Resolution a day or two previously, and we could then get the legislation through the House quickly.
I think that is the only possible corrective that we can apply to this situation other than reduction of taxation. It is clear that many people today believe that the State is unduly weighing upon their opportunities, hopes and enterprises and so they resort to this kind of thing. Do we suppose that people engaged in business and commerce really want to spend half or three-quarters of the day with secretaries, accountants and taxation barristers looking into the possibility of avoiding the effect of this State activity? Of course they do not. They would much rather pursue their normal avocations. Until we can bring the weight and scale of taxation down we shall not achieve any remedy for the issue now before us.

Mr. Nabarro: I have found it very difficult in the course of the tortuous debates in Committee today to distinguish between the provisions of Clauses 16 and 17. If I err slightly in my remarks to the Committee by straying into the provisions of Clause 17, Mr. Hynd, I think it might well be understandable, because they are extremely complex provisions and can be read only with one in conjunction with the other.

The Temporary Chairman (Mr. H. Hynd): The hon. Member must not stray too far into Clause 17.

Mr. Nabarro: I recognise that, and I hope, Mr. Hynd, that you will be in a position so to interpret these Clauses as to tell me when I err.
My hon. and learned Friend the Financial Secretary dealt with Clauses 16 and 17 together in his Second Reading speech. I do not think he could have been capable of precisely separating the requirements of the one Clause from the other. My hon. and learned Friend said:
I now pass to a very different sort of matter, to Clauses 16 and 17, which are designed to protect the Revenue against avoidance through the device known as dividend stripping.
There followed a lengthy explanation, including hypothetical cases which all of us have now read with great interest, but which some of us, myself included, have found extremely difficult to understand.
My hon. and learned Friend concluded his reference to Clauses 16 and 17 with these words—and this is the point to

which I want to address myself this evening—
The House will see that these are not ordinary commercial transactions. This is a serious matter for the Exchequer. The Income Tax code is generous in its treatment of trading losses, but it assumes genuine losses to set off against genuine income."—[OFFICIAL REPORT, 12th May, 1958; Vol. 588, c. 41–3.]
It was those last few words which caused me to intervene in the speech of the hon. Member for Sowerby (Mr. Houghton), and I do not blame him for side-stepping and adroitly neglecting to answer the specific point put to him. It falls partly in Clause 16 and partly in Clause 17, but I shall try to address my comments to that part which comes within Clause 16.
I ask the Chancellor of the Exchequer this over-simplified question. Is there anything in Clause 16 which inhibits or precludes and makes illegal the purchase of an Income Tax loss forward by one company from another company? This is a legitimate recourse widely practised. The hon. Member for Oldham, West (Mr. Hale)—and I wrote down his words—referred to "saving taxation by buying losses." Those were his exact words. He went on to use the phrase, "competition to buy a loss."
That is a legitimate business recourse. It is widely practised in industry and commerce. It is desirable that that should be so, and I rise this evening to protect that arrangement, for I believe that in certain circumstances it may fall within the purview of the provisions in Clause 16, if not within Clause 17.
Let us take a case, which is not hypothetical by any means, that of a general engineering company—of which there are hundreds if not thousands throughout the country—using large quantities of castings or forgings in its manufacturing processes. Supposing that it does not possess the manufacturing facilities by itself to produce those castings or forgings and it decides, as a perfectly normal process of vertical combination within the industry, to buy as a subsidiary company a concern which manufactures only castings or forgings; this is a perfectly legitimate recourse, a process of vertical combination, which may well lead to increased efficiency and possibly lower costs in that industry.
However, it may well be—and I address this to the hon. Member for


Sowerby—that the company which is being bought, the producer of forgings or castings, may have a large loss forward for Income Tax purposes. Is that to be declared illegal in the eyes of the hon. Member for Sowerby or the hon. Member for Oldham, West, who talked of saving tax by buying losses and of competition to buy losses, and the hon. Member for Oldham, West did so in rather derogatory terms?
Surely the hon. Member was viewing the matter from narrow fiscal aspects by themselves, whereas in fact there are often practical reasons for a major company with a general engineering product, for example, buying a smaller but specialised concern. Should it be prohibited from so doing simply because the smaller concern may have a large loss forward for Income Tax purposes? I answer, certainly not.

Mr. Hale: The hon. Member is speaking so well—as he usually does—that he will convince himself before long. He is quoting a rather unusual example.

Viscount Hinchingbrooke: No.

8.45 p.m.

Mr. Hale: But it is an unusual example. I will quote him a normal one. Let us suppose that there is a tool manufacturing company, which is a highly reputable organisation making about £100,000 a year on taxable profits. It does not like paying taxes—nobody does. In the North of England there is a company in liquidation, called the Oswaldtwistle and Middle Wallop Mah Jong and Fish and Chip Co. Limited, United, which lost £50,000 last year. The liquidator says, "Look here boys: buy us up, form your own little company. You take over the shares and put them in two names; hold a meeting in a little back room, amend the articles of association, and say, 'We are now in favour of making machine tools.' You can do all that for roughly half-a-crown." Fish and chips go out, with all their beautiful aroma, and machine tools come in. [Interruption.] There is lots of time. I do not want to go home tonight.
That is precisely what happens. The liquidator is looking not only for machine tool companies but for motor vehicle repair companies, garage companies,

and so on, and finding who will pay the most for the losses.

Mr. Nabarro: I readily concede that cases of that kind may occasionally occur, but everybody with the slightest knowledge of industrial matters knows that there are genuine combinations and amalgamations for the purposes which I have described, and that the primary purpose of such amalgamations and combinations is not the avoidance of tax. But I claim that it is nearly impossible to distinguish the motive for a particular amalgamation or combination. Should we damn them all out of hand, on the grounds that they are recourses to tax avoidance, when so many of them are quite legitimate devices to improve productivity and lower costs? There are surely countless cases of that kind.
I cannot avoid mentioning Clause 17, because in this respect the Clauses overlap, but I want to ask my right hon. Friend whether there is anything in either Clause which prohibits, inhibits or makes more difficult in any way the purchase of a loss forward, which is an absolutely legitimate recourse and ought to be encouraged? If the answer of my right hon. Friend is that there is no such prohibition or inhibition it immediately demolishes the case put to the Committee by the hon. Member for Oldham, West who seemed to suggest throughout his speech that "saving taxation by buying losses", to quote one of his phrases, and "competition to buy losses", were highly immoral. They are nothing of the kind. They are very moral, and they are desirable recourses of business. They were thought so last year by Odhams Press and the Daily Herald.
I am aware that the hon. Member for Sowerby was a member of the negotiating committee of the Trades Union Congress in connection with the transactions which caused the controlling interest in the Daily Herald to be taken over by Odhams Press. During the Second Reading debate, I referred to the transaction in these words:
As to the ethics of dividend stripping, let us consider here and now matters affecting the Daily Herald's finances, which may be very instructive to hon. Gentlemen opposite. Last year, the trade unions transferred control of the Daily Herald to Odhams Press Limited. The object of this transaction was to enable Odhams Press to set off the accumulated losses


of the Daily Herald against the large profits which Odhams Press Ltd. were earning on their other publications. This means that a very considerable proportion of the continuing losses of the Daily Herald are now paid by the Exchequer in the form of loss of taxation receipts arising from the profits of Odhams Press, Ltd."—[OFFICIAL REPORT. 12th May, 1958; 588, c. 91–2.]
That was a deliberate purchase of a loss forward. I will give the Committee the amount of the loss forward. It was £2 million. The Daily Herald was losing money at the rate of £9,000 a week, on a circulation of 1,650,000 copies on each of six weekdays. It was a deliberate effort to bolster the finances of the Daily Herald, to prevent it succumbing altogether, and going into Carey Street.

Mr. Houghton: I am obliged to the hon. Gentleman for giving way, because I heard the statement about the Daily Herald when he made it earlier and I had no opportunity to intervene. Now he directly associates me with this transaction, and I acknowledge that I was a member of the committee of the General Council of the Trades Union Congress which concluded this arrangement about the future of the Daily Herald. I am obliged to the hon. Gentleman for giving me the opportunity of declaring that that transaction had not as its purpose wholly, mainly or at all tax avoidance.
I do not want, and it would not be in order for me, to go into details of the transaction. But it is important to observe that Odhams Press had lent all the money concerned to the Daily Herald to cover its operating costs in earlier times; so that the money had originally come by loan from Odhams Press to the Daily Herald. This transaction did no more than allow Odhams Press to recoup its losses from future profits of the Daily Herald.

Mr. Stevens: Before my hon. Friend replies, would he be good enough to answer a question which arises at once in my mind? If it were not one of the main purposes of this transaction to set off previous losses against future profits, was it not one of the main results of this transaction, and equally beneficial?

Mr. Nabarro: I am grateful to my hon. Friend who is, of course, a chartered accountant and, therefore, professionally qualified to judge a matter of this kind.
Whatever may have been the purpose of the transaction, the result of the transaction was a substantial loss to the Treasury—

Mr. Hale: They were not making a profit.

Mr. Nabarro: Really, the hon. Gentleman—

Mr. Hale: Not a penny.

Mr. Nabarro: I did not interrupt the hon. Gentleman's speech. I listened to a lengthy speech from him, and this is a complicated matter.
I did not say that the Daily Herald was making a profit. In case the hon. Gentleman failed to gather the purport of the words I used, I will repeat them to him:
The object of this transaction was to enable Odhams Press to set off the accumulated losses of the Daily Herald against the large profits which Odhams Press, Ltd. were earning on their other publications. This means that a very considerable portion of the financial losses of the Daily Herald are now paid by the Exchequer in the form of boss of taxation receipts arising from the profits of Odhams Press"—

Mr. Houghton: Mr. Houghton rose—

Mr. Nabarro: I am going to finish, I listened to the hon. Gentleman—

Mr. Houghton: I am obliged to the hon. Gentleman, but in bringing my name into this connection I think, with respect to him, that he is endeavouring to import a little prejudice against some of the things I have said earlier and I am very anxious to clear myself and to clear those others concerned in this matter—

Mr. Nabarro: I am—

Mr. Houghton: Let me say that the losses of the Daily Herald were made good by loans from Odhams Press which it could not charge against its taxable profits; and therefore Odhams Press were suffering losses upon which it paid tax and the transaction will not result in a loss to the Exchequer.

Mr. Nabarro: If the hon. Gentleman thinks that my reference to him as a member of the negotiating committee in any way impugns his character or professional reputation, I unreservedly withdraw. The fact is that he was a member of that committee and there were a number of other prominent trade


unionists who were members. I do not in any way deprecate the transaction which was arranged. It was a perfectly legitimate transaction. Had I been the managing director of Odhams Press, or of the Daily Herald, I should have applauded a transaction of that kind. The purchase of losses forward in business is highly desirable in certain circumstances. It is not illicit, nor is it immoral, and it is nothing which should be deprecated, either by the hon. Member for Sowerby or by the hon. Member for Oldham, West. It is a perfectly moral thing to do—

Mr. Hale: Mr. Hale rose—

Mr. Nabarro: I want to finish—

Mr. Hale: The hon. Gentleman has three times misrepresented me and refuses to give way.

Mr. Nabarro: I quoted the words of the hon. Gentleman. He referred to saving taxation by buying losses and to competition to buy losses—

Mr. Hale: Mr. Hale rose—

Mr. Nabarro: I have not given way yet. The hon. Gentleman was highly derogatory in his comments. I want to finish what I have to say.
I am not alone in these comments. They are not in any way original. I do not claim that special distinction in this field. On the contrary, they are warmly supported by many important persons and journals, not of a Tory Party political or partisan character.
Let me quote the Economist of 29th June, 1957. Let the hon. Member listen to these words. I commend them to the hon. Member for Sowerby. I am sure that he could not have seen them when he made his speech today. It refers to the Daily Herald transaction and says:
The first part of the new arrangements for the Daily Herald announced this week—with the T.U.C. 'granting a licence' to Odhams to publish the paper—is merely a sensible tax dodge: Odhams' accountants will now be able to set off the losses on the Daily Herald against its group profits on other ventures It is surprising that this has not been done before.
I repeat for the benefit of the hon. Member for Sowerby, "a sensible tax dodge."
The hon. Member was very derogatory in his comments during his speech on the question, "That the Clause stand part

of the Bill," as to what was a tax dodge and what steps we should take in this Committee to prevent tax dodges. Here is a prominent journal, and I put it no higher than that, calling the Daily Herald-Odhams transaction a "sensible tax dodge".
May I also call attention to what The Times of 25th July, 1957, had to say? It said:
It appears that the main effect of the arrangement will be on the finances of Odhams Press, who will now be in a position to set off any losses on the Daily Herald against profits made by their enterprises for taxation purposes.
There is no doubt about the result of the transaction, though it might not have been the purpose of it. In their innocence, it appears the Daily Herald people did not know what the implications would be. They were running the newspaper in such a way that it piled up a loss of £2 million, so I would not expect them to possess any outstanding financial perspicacity.
Whatever the result to the Daily Herald may be, the result to the Exchequer and to the Chancellor of the Exchequer was the loss of large sums of money in revenue. It ill behoves Socialists in this Committee to denigrate a system from which their principal party Press organ obtained such a magnificent advantage in its financial arrangements. [Interruption.] The hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith) is irritated with me. He has reason to be irritated, because the biggest tax dodger in recent times has been the Daily Herald. Even the Economist calls it a "sensible tax dodge".

Mr. Ellis Smith: My indignation was reflecting the fact that the hon. Member called Odhams Press "Socialist". It is not the case. Odhams are not Socialist. They are part of the system which the hon. Member supports.

Mr. Nabarro: I did not refer to Odhams as Socialist, and I have no knowledge of that organisation, but I am sure that the Daily Herald is Socialist and it was a party to this transaction. I hope, therefore, that in future we shall have a little less hypocrisy and humbug from hon. Members such as the hon. Member for Sowerby. When he talks about—

Mr. Hale: On a point of order. We have now had, Mr. Hynd, an allegation of hypocrisy and humbug directed against an individual Member of the Committee. That has been ruled out of order time after time. I would not raise this point at all but for the contemptible conduct of the hon. Member for Kidderminster (Mr. Nabarro). Although criticising what I have said, he has four times refused to give way to me. I therefore do a thing which I do not normally do, and I call your attention by means of this point of order to a manifest breach, which is made more disgraceful by the fact that we have had a hypocritical apology from the hon. Member for Kidderminster to my hon. Friend the Member for Sowerby (Mr. Houghton), in which the hon. Member said that he did not mean to say something, whereas three minutes later he said it.

The Temporary Chairman: These personal aspersions are always to be deprecated.

9.0 p.m.

Mr. Hale: I suggest, Mr. Hynd, that this is not merely a matter to be deprecated, but a matter on which the hon. Member for Kidderminster (Mr. Nabarro) should be called upon to withdraw. In view of the fact that he withdrew it before he said it, there seems to be more reason for that.

Mr. Nabarro: I apologise profusely to the hon. Member for Sowerby if he felt that he was in any way impugned. I did not impugn his professional reputation or character, but mentioned in an aside that he was a member of the negotiating committee dealing with this transaction. He admitted it himself, and the Economist has called it "a sensible tax dodge". Presumably the Economist considers that the hon. Member was a party to that "tax dodge", but I merely add that the hon. Member—

Mr. Ross: Surely the matter was perfectly simple. The word used by the hon. Member for Kidderminster (Mr. Nabarro) was "humbug". So far as I know, that is not a Parliamentary expression and the hon. Member should be asked to withdraw it.

The Temporary Chairman: I do not remember the word "humbug" being

used, but if the hon. Member used it in the heat of the moment I am sure he will withdraw it.

Mr. Nabarro: No, Mr. Hynd, I did not suggest that the hon. Member for Sowerby was either a hypocrite or a humbug. What I said was that the case he presented to the Committee was hypocrisy and humbug, and that I reiterate, unless it is considered out of order to make an imputation of that kind.

Mr. Houghton: My final word is that it was not a tax dodge, sensible or otherwise. It was a commercial transaction, and I am prepared to justify it, but this has nothing whatever to do with dividend stripping. Clause 16 has nothing to do with buying losses forward. What it deals with is unloading of dividends from assets collected. That is what it is doing—not buying losses, it is buying dividends.

Mr. Nabarro: I have no doubt that the hon. Member for Sowerby is very touchy and sore that the Daily Herald was never in a position to pay any dividends, but, be that as it may—

Mr. Mitchison: On a point of order, Mr. Hynd. I am not in the least sore or touchy, but I heard the hon. Member for Kidderminster (Mr. Nabarro) refer to my hon. Friend the Member for Sowerby (Mr. Houghton) as a hypocrite and a humbug. "Hypocrite" is, of course, out of order and, I imagine, "humbug" is too. I have not yet heard the hon. Member for Kidderminster withdraw the expression, which he ought not to have used. I do not know whether I shall hear him or not, but I suggest to you, Mr. Hynd, that if he does not withdraw, he ought to be asked to do so.

The Temporary Chairman: I have heard the hon. Member for Kidderminster (Mr. Nabarro) say he was not applying those expressions to the hon. Member for Sowerby (Mr. Houghton) personally but to the trend of his remarks, and he apologised for any personal reference he may have made, but perhaps he may care to confirm that.

Mr. Mitchison: Further to that point of order. I do not think the hon. Member did, but if he intended to do so perhaps he will tell us.

Mr. Nabarro: I am grateful, Mr. Hynd, as always, for your protection in a moment of crisis. To make my position perfectly clear, I did not call the hon. Member either a hypocrite or a humbug. What I said was that the case he presented to the Committee in regard to tax avoidance amounted to hypocrisy and humbug and I repeat it, having regard to the transactions of Odhams Press and the Daily Herald.

Mr. Mitchison: Is that in order, Mr. Hynd, "the case he presented to the Committee…amounted to hypocrisy and humbug"? I suggest that that is going beyond the rules of order.

The Temporary-Chairman: I think that is within the wide scope of Parliamentary order.

Mr. James Griffiths: Further to that point of order, Mr. Hynd. Is it brought within the rule of Parliament when the hon. Member for Kidderminster (Mr. Nabarro) identifies those words with my hon. Friend the Member for Sowerby (Mr. Houghton)?

The Temporary Chairman: I understand the hon. Member has made it clear that he did not identify them personally with the hon. Member for Sowerby. It is undesirable that these epithets should be thrown across the Chamber, but we get a little excited at times, especially in Committee. It is undesirable that these expressions should be used, and I hope that the hon. Member for Kidderminster will make it quite clear that he does not apply those adjectives to the hon. Member for Sowerby.

Mr. Nabarro: For the third time, Mr. Hynd, I did not apply those comments to the hon. Member for Sowerby. I repeat, for the third time, that I did not impugn his character or his professional reputation in any way. I said that the case which he presented to the Committee was hypocritical and humbug, and I repeat that.
Finally, I ask my right hon. Friend whether, having regard to the importance of this Odhams and Daily Herald case, it would not be desirable to establish how much money has been lost to Her Majesty's Revenue by this "sensible tax dodge", as the Economist called it. I suggest that it would be a very good idea, before very much longer has passed, if

we could have a judicial inquiry into the transaction so that the facts may be established beyond peradventure.

Mr. Mitchison: I think that that is hypocrisy and humbug.

Mr. Nabarro: I am sorry that the hon. and learned Member for Kettering has found originality deserting him on this question.

Mr. Scholefield Allen: The hon. Member for Kidderminster (Mr. Nabarro) should lend my hon. and learned Friend the Member for Kettering (Mr. Mitchison) his thick skin.

Mr. Nabarro: I have a very thick hide when discussing such matters with Socialists. It will not be possible for any of these statements which I have made to the Committee this evening to be confuted in any way. They are all on record.
I want my right hon. Friend to tell the Committee quite clearly that the purchase of a loss forward for Income Tax purposes is in no way prohibited by the provisions of the Clause. I shall ask him the same question on Clause 17, because that type of transaction is often highly desirable in industry and commerce in many contexts and over a wide field, and I should not like a Conservative Administration to do anything to prejudice such a course of events in the future.

Mr. Hale: Over the many years since the hon. Member for Kidderminster (Mr. Nabarro) came to the House I have wished to express a frank view on his speeches, because I have always thought that there was a good deal of hypocrisy and humbug in many of the things he said, but I have restrained myself not only because of my innate sense of decency but because I thought that this would be a breach of the rules and laws of the House. Now that you have been good enough, Mr. Hynd, to rule that such an observation can be made, I desire to make it about the hon. Member's remarks tonight, and I desire to say that his conduct is peculiarly contemptible because in the course of his speech he made four separate references to me and refused to give way when I attempted to reply to them. Not only did he refuse to give way to me, but at least five times afterwards he gave way to other hon. Members. That seemed to be an act of personal discourtesy on which I was entitled to comment.
Let me therefore say that in my speech I made clear what my views were. I said that, personally, if I saw a way of avoiding tax, I should do so and that if I were called upon to give advice on tax avoidance, I should give it. I said that a Lord Chief Justice of England of the past had said that this could be done. But I also said that unless the Treasury took the view that this was essentially a swindle, and that the people who were doing it ought to be treated by the Treasury as crooks, we should not be able to stop tax avoidance.
There is a great deal in what the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) said. It is a perfectly logical and reasonable point of view to say that in the contacts between people who think they are being brutally over-taxed and the Treasury they are entitled to use all the guns at their command. But I go further and say that it is the duty of the Treasury to try to stop those guns from becoming effective. My speech was along those lines.
I want to say only one other word, and I want to say it coolly, without heat and without any antagonism at all. I hold no brief for the Daily Herald in particular or for Whams Press. I know nothing of this transaction. But it has been a rule up to now in the House, and it was a rule long before the hon. Member for Kidderminster was elected, that one did not mention personal and individual transactions about tax, or ask Questions about them, because it would lead to mutual recriminations of the most undesirable kind.
There have, of course, been exceptions. There was a special case when the Labour Party indulged in retrospective legislation about a case which appeared to be a rather special example of personal tax avoidance and which was of a nature which obviously could not have very widespread applications. This is an old story, but I admit at once, in case there is some interruption, that there have been exceptions, although, generally speaking, we have respected that rule.
There are many forms of tax avoidance and I do not personally reprobate anyone who takes advantage of them. There is the method by which if you have written a great book which is selling all over the world you do a capital transaction with your publisher and your

remuneration for it becomes capital. We have never raised this point. We have never discussed names in the House. I hope that we shall not do so. Nobody profits by it.
I hope, however, that some of those Members who value the traditions of the House, and who realise that in discussing these things frankly and freely we have, in the past, tried to abstain from personalities, will have a quiet word with the hon. Member for Kidderminster, for whom I have a considerable personal regard, who talks often a great deal of good sense and with considerable courage, but who occasionally makes observations which appear to have come from a slightly mentally retarded political juvenile delinquent.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 17.—(RESTRICTION ON RELIEF FOR LOSSES BY REPAYMENT OF TAX IN CASE OF DIVIDENDS PAID OUT OF ACCUMULATED PROFITS.)

Mr. Stevens: I beg to move, in page 12, line 24, after "aforesaid", to insert:
if for the period of six years in the said subsection (1) of section four there were substituted a reference to a period of two years".
I venture to move from a controversial subject to one which is not so controversial but which is technical. The words on the Notice Paper refer to Section 4 of the Finance (No. 2) Act, 1955, to which reference has been made earlier today. In this special context, however, I think it would be for the benefit of the Committee if I pointed out that Section 4 of that Act refers to persons carrying on a particular trade. That trade is specified in Section (4) as a
trade which consists of or comprises dealings in shares or other investments"—

Hon. Members: Order.

Mr. Stevens: If I am out of order, Mr. Hynd, I am sure that you will help me.

The Temporary Chairman: The word "Order" is, I think, being applied to a certain amount of noise that is going on in the Committee.

Mr. Stevens: I am grateful to you. Mr. Hynd.
I was saying—I repeat it for the benefit of those who did not hear me—that Section 4 of the Finance (No. 2) Act, 1955, refers to persons who are concerned in a particular trade, namely, a
trade which consists of or comprises dealings in shares or other investments".
It goes on to deal with the dividend stripping, about which we have heard a good deal today.
I remind the Committee that the type of company which one has in mind is the investment or finance company and, in particular, that kind of company which buys shares of a subsidiary company and subsequently sells those shares at a loss and, because it is a finance company, is able to charge the loss on the sale of those shares against its profits for Income Tax and other taxation purposes.
Clause 17, however, goes much wider than that. It begins with the words:
Where a person carries on a trade other than such a trade as is mentioned in…section four of the Finance (No. 2) Act, 1955…
In other words, the Clause throws the issue wide open, not merely to finance companies and investment companies, but to ordinary trading companies.
In the course of the ordinary commercial and industrial development of the country it may very well happen that a trading company buys as a subsidiary company another company which has an accumulated balance of profit. Until Clause 17 becomes law, if in the course of the next year or two that purchasing company makes a loss, the loss is available for set-off against the profit of the subsidiary company which has these accumulated profits.
Under Clause 17, however, that will become impossible. We find that the dividend-stripping exercise is widened from the investment company or the finance company, which, as I have said, is in a very special category in these respects, right out to the trading company. I suggest to my hon. and learned Friend the Financial Secretary that it is quite beyond the wit of a managing director or chairman of an ordinary trading company to look into the crystal when he buys a subsidiary company and to say, "Is this not magnificent? In three years' or four years' time I am going to make a trading loss, not a loss on the sale of

shares or something of that kind, but an ordinary common or garden trading loss; but at the moment I am buying this other company which has a profit, and when I make a loss in three or four years' time, because of Clause 17, I shall not be able to set off this loss occurring in the future against the profits of the subsidiary which I am acquiring."
9.15 p.m.
It is quite beyond the perspicacity of any board of directors to look into the future in that way. As my hon. Friend the Member for Kidderminster (Mr. Nabarro) said on Clause 16, this Clause and Clause 16 are very closely associated. I suggest to my hon. and learned Friend that this Clause 17 has gone too far, that in trying to catch the tax dodgers, the dividend strippers, the Government are bringing into the net the perfectly ordinary trading concern, even perhaps, the Daily Herald. I do not know whether I am in order in mentioning the Daily Herald on this Clause. However, it does seem to me that the Clause goes much too far.
Section 4 of the Finance (No. 2) Act, 1955, puts up a barrier respecting these new concerns, these companies acquired for spurious purposes, of six years. It seems to me entirely unreasonable that a normal trading company should have to wait six years before it can do what any other normal businessman can do, and that is set off the loss on one concern against the profit on another concern.
What the Amendment seeks to do for the trading company, not for the investment or financial companies, the companies we are considering in connection with dividend stripping, is to reduce the time factor, the barrier of six years, to two years. I think that anyone who has knowledge of these matters knows perfectly well that in dividend stripping operations, to which hon. Members on both sides of the Committee are opposed, the transaction takes place in a very short time. It seems wholly unreasonable that a trading company should have to wait six years before any set off can take place. The Amendment seeks, therefore, in the case of the trading company only, to reduce that barrier of six years to two years, and I hope that my hon. and learned Friend will be able to say that


he accepts the force of the arguments which I have advanced and that the Government will accept the Amendment.

Mr. Page: I support my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens), who moved this Amendment, in saying that this Clause seems to go too far. I should like to add a few words about the way in which it seems to me it will work. The Clause refers specifically to the process of reclaiming tax under Section 341 of the 1952 Act. Under Section 341, a company which makes losses and also happens to have an investment income is entitled to ask that its losses be set off against its investment income for tax purposes; that is to say, the dividend which it will have received from its investments will have suffered tax and the company, having made a trading loss, can ask for its trading loss to be taken into account against that dividend from its investments, and, therefore, for a return of tax. It can do that not only in the year in which the loss occurs, but in the immediately following year. It has two years in which to make that choice.
It has an alternative in the following Section in the 1952 Act, Section 342. Assume that a company makes a trading loss. Perhaps it has no investment income, or perhaps it does not wish to take that loss into account against its investment income at once. It continues to hold that loss or carry it forward for tax purposes over the next six years.
The advantage of Section 341 over Section 342 is that if the company takes advantage of Section 341 it gets immediate tax relief. In some cases that may save the company from serious financial difficulties, but Clause 17 now prevents the company with ordinary trading losses from taking advantage of that immediate relief from tax. I appreciate that before 1955, finance companies and investment companies took advantage of Section 341 of the 1952 Act in such a way as my hon. Friend the Member for Langstone describes.
One had a company dealing with investments which brought up another company with cash reserves of, say, £100,000. Paying £100,000 for that company was a trading expense for a company dealing in securities. Having got those cash reserves, that company would pay itself as

shareholder a dividend of £90,000, thereby reducing the shares to a value of £10,000. It would then sell those shares for £10,000, thereby making a loss on paper of £90,000, although it had received that £90,000 in dividends. That loss, so Section 4 of the 1955 Act has said, shall not be taken into account against the investment income, the dividend of £90,000.
That is the peculiar case of the investment company, because in that case the company is paying tax on capital gains. It is able to deduct capital losses because the goods in which it is dealing are securities. Now Clause 17 endeavours to apply that same rule not only to investment companies but to ordinary trading companies, and the trading company which has made a pure trading loss will not be entitled to ask for that loss to be taken into account against its investment income if that investment income comes from the profits which have accumulated before the company acquired that investment, that is to say if it happens to have bought its shares in some other company after that company has made some profit and accumulated it to set off future profit from that company against its losses.
Surely the dividend stripping transactions which we want to check are those which are done deliberately to buy up undistributed cash reserves and set them off against losses. If we set a time limit such as my hon. Friend the Member for Langstone has put in the Amendment, we shall preserve the right of the genuine trading loss company to set off that loss for tax purposes and tax relief against genuine profits. Those were the words which my hon. Friend used on Second Reading, and he said that we did not want to damage the right to set off genuine loss against genuine profit for the purpose of tax relief. I think we can preserve that, despite Clause 17, by some such Amendment as my hon. Friend has moved.

The Financial Secretary to the Treasury (Mr. J. E. S. Simon): This Amendment seeks to confine the operation of Clause 17 to cases where the acquisition by the loss-making trading concern of shares in the company which is to be stripped of its accumulated reserves took place more than two years before the date when the


dividend is taken out. As the Clause stands, it applies where the shares were acquired not more than six years before the dividend becomes payable.
Perhaps I may remind the Committee of the type of transaction with which we are concerned in Clause 17. My hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) and my hon. Friend the Member for Crosby (Mr. Page) are right when they say that in this Clause we have passed from either the investment company in Clause 16 or the exempt taxpayer, such as the charity, which was also dealt with in the 1955 legislation and in Clause 16, to the ordinary trading companies. So the case is, I admit, a different one; but, nevertheless, it is just as surely a case of dividend stripping, and just as surely is the income against which the losses are set a purely artificial one.
May I give an example of the type of transaction with which this Clause is concerned? I will quote the example I gave during the Second Reading debate. It is where company B, with trading losses, acquires say the whole of the ordinary shares of company A, which has approximately £60,000 of liquid tax reserves. Company A then pays up the reserves to company B by way of dividend and the tax law treats that as a gross dividend of about £100,000, from which £40,000 tax has been deducted. Company B, having made a loss of over £100,000, can claim repayment of tax amounting to the £40,000 which is deemed to have been deducted. The Committee will see that the profit against which the loss is suffered is a purely fictitious one. It is the creation of a fiction of the law which grosses up a net dividend to a gross figure.
It is against that background that we must view this Amendment. I do not deny for a moment that the losses in this type of case are genuine, but the complaint of the taxpayer, the complaint of the Revenue and the complaint of the Committee, in discussing these devices of dividend stripping, is that the income brought into existence to support the loss claim is artificial in the way I have demonstrated. Therefore, it seems appropriate to use the existing test of artificiality, namely, the test of six years which is in the main Act, the 1955 Act.

Mr. Stevens: The kind of trading loss to which I was referring was not a loss in the case of the acquired subsidiary, but a future, perfectly genuine trading loss in the case of the acquiring company, namely, the purchasing company. How could that be an artificial loss in the sense in which my hon. and learned Friend has been using the word?

Mr. Simon: What we are concerned with is the loss in the acquired company, against which the profits of the acquiring company are set. That is the example I gave. It operates equally where the loss-making company buys up a profitable company. That is the other example which would be caught by Clause 17.
9.30 p.m.
The reasons why the six-year period seemed to us to be an appropriate one and not too long are three. First, the ostensible tax income created by stripping retains to the full the artificial character which I have tried to indicate, even if its receipt is deferred for more than two years. Secondly, the absence of any demonstrable motive of avoidance at the date of acquisition does not in any way affect the artificiality of that income and it remains artificial throughout. My hon. Friend the Member for Crosby said that the provision should be used only in a case where the transaction is deliberately done to buy up a company with tax-paid reserves. But the motive at the time that the purchase takes place is irrelevant here. The artificiality of a "stripped" dividend taken out as soon as an opportunity to use it presents itself remains the same.
Thirdly—this seems to me to be the most important point in considering time limits—it is an unsafe assumption that the likelihood of a loss for two years ahead cannot be foreseen. Take, for example, the case of company B buying up company A and its strippable reserves in early March, 1959. At that time that company might well have laid plans for the scrapping and replacement of a considerable quantity of machinery and plant so as to give rise to large initial allowances for the year 1960–61, and the expected amount of those reliefs might well be sufficient to swamp company B's profits for that year. In that way those concerned would be able at the time of acquisition to foresee the loss in the taxable year two years ahead in order to


permit a loss claim against the dividend paid, say, at the end of March, 1961.
There is, finally, the case put to me by my hon. Friend the Member for Langstone, where company B buys up company A in order to take over the productive assets and good will of a real business. There are many cases of that sort. In other words, it is not merely a device for obtaining control of liquid funds which are to be stripped. In that case the full amount of the post-acquisition profits of company A which are available for the payments of dividend can be used to cover the dividend which the stripping company B draws from its new subsidiary.
Therefore, in the genuine case Clause 17 should produce no hardship even at the end of the six-year period, because the dividend paid would, first, have to exhaust the true trading profits in the whole of the post-acquisition period before it becomes caught by Clause 17. For those reasons, and principally because a period of two years is altogether too short, in that losses at the end of that period could be forseen, I cannot advise the Committee to accept the Amendment.

The Deputy-Chairman: The Question is—

Mr. Stevens: I am rather disappointed by the answer—

The Deputy-Chairman: I started to put the Question.

Mr. Stevens: I was about to suggest, Sir Gordon, that in due course I had a decision to make whether to suggest that the Committee should divide upon the Amendment or whether I should ask leave to withdraw it. Am I not permitted

to say a word or two as to the decision I should make?

The Deputy-Chairman: The hon. Member did not rise and so I began to put the Question.

Mr. Stevens: If I am in order in doing so, I wish to say that I am disappointed by the reply given by my hon. and learned Friend. To a very large extent it seems that my hon. and learned Friend has got the position upside down. He was talking of dividend stripping, whereas in the case of a trading company no such position arises. I was thinking of a perfectly normal Section 341 claim by the parent company for two or three years after the acquisition of the subsidiary.
Because it seems that owing to the stress and difficulty of dealing with other matters my hon. and learned Friend and his right hon. Friend have not had time to give sufficient attention to the Amendment, I ask the leave of the Committee to withdraw it for the time being, in the expectation, which I am sure will be realised, that between now and Report my right hon. Friend will give further consideration to it. Accordingly, I beg to ask leave to withdraw the Amendment.

Hon. Members: No.

Amendment negatived.

Amendment proposed: In page 12, line 28, leave out from second "the" to "subsection" in line 29 and insert:
thirteenth day of December, nineteen hundred and fifty-five".—[Mr. Fletcher.]

Question put, That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 230, Noes 191.

Division No. 161.]
AYES
[9.37 p.m.


Aitken, W. T.
Birch, Rt. Hon. Nigel
Cooper, A. E.


Amery, Julian (Preston, N.)
Bishop, F. P.
Cooper-Key, E. M.


Amory, Rt. Hn. Heathcoat (Tiverton)
Body, R. F.
Cordeaux, Lt.-Col. J. K.


Anstruther-Gray, Major Sir William
Bossom, Sir Alfred
Craddock, Beresford (Spelthorne)


Arbuthnot, John
Bowen, E. R. (Cardigan)
Crosthwaite-Eyre, Col. O. E.


Armstrong, C. W.
Boyd-Carpenter, Rt. Hon. J. A.
Crowder, Sir John (Finchley)


Ashton, H.
Braine, B. R.
Cunningham, Knox


Atkins, H. E.
Brooman-White, R. C.
Davidson, Viscountess


Baldwin, Sir Archer
Browne, J. Nixon (Craigton)
D'Avigdor-Goldsmid, Sir Henry


Balniel, Lord
Bryan, P.
Deedes, W. F.


Barlow, Sir John
Bullus, Wing Commander E. E.
Digby, Simon Wingfield


Barter, John
Burden, F. F. A.
Dodds-Parker, A. D.


Batsford, B. C. C.
Butcher, Sir Herbert
Donaldson, Cmdr. C. E. McA


Beamish, Col. Tufton
Campbell, Sir David
Doughty, C. J. A.


Bell, Philip (Bolton, E.)
Carr, Robert
du Cann, E. D. L.


Bell, Ronald (Bucks, S.)
Cary, Sir Robert
Dugdale, Rt. Hn. Sir T. (Richmond)


Bennett, F. M. (Torquay)
Chichester-Clark, R.
Duncan, Sir James


Bevins, J. R. (Toxteth)
Cole, Norman
Duthie, W. S.


Bidgood, J. C.
Conant, Maj. Sir Roger
Elliott, R. W. (Ne'castle upon Tyne, N.)


Bingham, R. M.
Cooke, Robert
Errington, Sir Eric




Finlay, Graeme
Kaberry, D.
Pitman, I. J.


Fisher, Nigel
Keegan, D.
Pitt, Miss E. M.


Fletcher-Cooke, C.
Kerr, Sir Hamilton
Powell, J. Enoch


Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Kimball, M.
Price, David (Eastleigh)


Freeth, Denzil
Kirk, P. M.
Price, Henry (Lewisham, W.)


Gammans, Lady
Lagden, G. W.
Prior-Palmer, Brig, O. L.


Garner-Evans, E. H.
Lambton, Viscount
Profumo, J. D.


George, J. C. (Pollok)
Langford-Holt, J. A.
Ramsden, J. E.


Gibson-Watt, D.
Leavey, J. A.
Rawlinson, Peter


Glover, D.
Leburn, W. G.
Redmayne, M.


Glyn, Col. Richard H.
Legge-Bourke, Maj. E. A. H.
Renton, D. L. M.


Godber, J. B.
Legh, Hon. Peter (Petersfield)
Ridsdale, J. E.


Goodhart, Philip
Lindsay, Hon. James (Devon, N.)
Robinson, Sir Roland (Blackpool, S.)


Gough, C. F. H.
Lindsay, Martin (Solihull)
Rodgers, John (Sevenoaks)


Gower, H. R.
Lloyd, Maj. Sir Guy (Renfrew, E.)
Roper, Sir Harold


Graham, Sir Fergus
Lloyd, Rt. Hon. Selwyn (Wirral)
Ropner, Col. Sir Leonard


Grant-Ferris, Wg Cdr. R. (Nantwich)
Longden, Gilbert
Russell, R. S.


Green, A.
Low, Rt. Hon. Sir Toby
Sharples, R. C.


Gresham Cooke, R.
Lucas, Sir Jocelyn (Portsmouth, S.)
Shepherd, William


Grimond, J.
Lucas-Tooth, Sir Hugh
Simon, J. E. S. (Middlesbrough, W.)


Grimston, Hon. John (St. Albans)
Macdonald, Sir Peter
Smithers, Peter (Winchester)


Grimston, Sir Robert (Westbury)
Mackeson, Brig. Sir Harry
Spearman, Sir Alexander


Grosvenor, Lt.-Col. R. G.
McKibbin, Alan
Speir, R. M.


Gurden, Harold
Mackie, J. H. (Galloway)
Stevens, Geoffrey


Harris, Frederic (Croydon, N.W.)
McLaughlin, Mrs. P.
Steward, Sir William (Woolwich, W.)


Harris, Reader (Heston)
Maclean, Sir Fitzroy (Lancaster)
Stuart, Rt. Hon. James (Moray)


Harrison, A. B. C. (Maldon)
McLean, Neil (Inverness)
Studholme, Sir Henry


Harvey, John (Walthamstow, E.)
MacLeod, John (Ross &amp; Cromarty)
Summers, Sir Spencer


Heald, Rt. Hon. Sir Lionel
Maddan, Martin
Sumner, W. D. M. (Orpington)


Heath, Rt. Hon. E. R. G.
Maitland, Cdr. J. F. W. (Horncastle)
Taylor, Sir Charles (Eastbourne)


Henderson-Stewart, Sir James
Maitland, Hon. Patrick (Lanark)
Taylor, William (Bradford, N.)


Hesketh, R. F.
Markham, Major Sir Frank
Teeling, W.


Hill, Rt. Hon. Charles (Luton)
Marlowe, A. A. H.
Temple, John M.


Hill, Mrs. E. (Wythenshawe)
Marples, Rt. Hon. A. E.
Thompson, Kenneth (Walton)


Hinchingbrooke, Viscount
Marshall, Douglas
Thompson, R. (Croydon, S.)


Hirst, Geoffrey
Maudling, Rt. Hon. R.
Thornton-Kemsley, Sir Colin


Hobson, John (Warwick &amp; Leam'gt'n)
Maydon, Lt.-Comdr, S. L. C.
Tiley, A. (Bradford, W.)


Holland-Martin, C. J.
Medlicott, Sir Frank
Turton, Rt. Hon. R. H.


Holt, A. F.
Molson, Rt. Hon. Hugh
Tweedsmuir, Lady


Hornby, R. P.
Mott-Radclyffe, Sir Charles
Vane, W. M. F.


Howard, Gerald (Cambridgeshire)
Nabarro, G. D. N.
Vickers, Miss Joan


Howard, Hon. Greville (St. Ives)
Nairn, D. L. S.
Vosper, Rt. Hon. D. F.




Wade, D. W.


Howard, John (Test)
Nicholson, Sir Godfrey (Farnham)
Wakefield, Sir Wavell (St. M'lebone)


Hudson, W. R. A. (Hull, N.)
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)
Wall, Patrick


Hughes-Young, M. H. C.
Noble, M. A. C. (Argyll)
Ward, Rt. Hon. G. R. (Worcester)


Hurd, A. R.
Nugent, G. R. H.
Ward, Dame Irene (Tynemouth)


Hutchison, Michael Clark (E'b'gh, S.)
Oakshott, H. D.
Webster, David


Hyde, Montgomery
O'Neill, Hn. Phelim (Co. Antrim, N.)
Williams, Paul (Sutherland, S.)


Hylton-Foster, Rt. Hon. Sir Harry
Orr, Capt. L. P. S.
Williams, R. Dudley (Exeter)


Iremonger, T. L.
Orr-Ewing, Charles Ian (Hendon, N.)
Wills, Sir Gerald (Bridgwater)


Irvine, Bryant Godman (Rye)
Osborne, C.
Wilson, Geoffrey (Truro)


Jenkins, Robert (Dulwich)
Page, R. G.
Wood, Hon. R.


Jennings, Sir Roland (Hallam)
Pannell, N. A. (Kirkdale)
Woollam, John Victor


Johnson, Dr. Donald (Carlisle)
Partridge, E.



Johnson, Eric (Blackley)
Peel, W. J.
TELLERS FOR THE AYES:


Jones, Rt. Hon. Aubrey (Hall Green)
Peyton, J. W. W.
Mr. Edward Wakefield and


Joseph, Sir Keith
Pickthorn, K. W. M.
Colonel J. H. Harrison.


Joynson-Hicks, Hon. Sir Lancelot
Pilkington, Capt. R. A.





NOES


Ainsley, J. W.
Callaghan, L. J.
Edwards, W. J. (Stepney)


Allen, Scholefield (Crewe)
Carmichael, J.
Evans, Albert (Islington, S. W.)


Bacon, Miss Alice
Castle, Mrs. B. A.
Evans, Edward (Lowestoft)


Baird, J.
Champion. A. J.
Fernyhough, E.


Balfour, A.
Chapman, W. D.
Finch, H. J.


Bence, C. R. (Dunbartonshire, E.)
Clunie, J.
Fitch, E. A.


Benn, Hn. Wedgwood (Bristol, S. E.)
Coldrick, W.
Fletcher, Eric


Benson, Sir George
Collins, V. J. (Shoreditch &amp; Finsbury)
Fraser, Thomas (Hamilton)


Beswick, Frank
Craddock, George (Bradford, S.)
George, Lady Megan Lloyd (Car'then)


Bevan, Rt. Hon. A. (Ebbw Vale)
Cronin, J. D.
Gibson, C. W.


Blackburn, F.
Crossman, R. H. S.
Gordon Walker, Rt. Hon. P. C.


Blenkinsop, A.
Dalton, Rt. Hon. H.
Grenfell, Rt. Hon. D. R.


Blyton, W. R.
Darling, George (Hillsborough)
Grey, C. F.


Boardman, H.
Davies, Stephen (Merthyr)
Griffiths, David (Rother Valley)


Bowles, F. G.
Deer, G.
Griffiths, Rt. Hon. James (Llanelly)


Boyd, T. C.
Diamond, John
Griffiths, William (Exchange)


Braddock, Mrs. Elizabeth
Dodds, N. N.
Hale, Leslie


Brockway, A. F.
Donnelly, D. L.
Hall, Rt. Hn. Glenvil (Colne Valley)


Broughton, Dr. A. D. D.
Ede, Rt. Hon. J. C.
Hamilton, W. W.


Brown, Thomas (Ince)
Edelman, M.
Harrison, J. (Nottingham, N.)


Burke, W. A.
Edwards, Rt. Hon. John (Brighouse)
Hastings, S.


Burton, Miss F. E.
Edwards, Rt. Hon. Ness (Caerphilly)
Hayman, F. H.


Butler, Herbert (Hackney, C.)
Edwards, Robert (Bilston)
Herbison, Miss M.







Hobson, C. R. (Keighley)
Mahon, Simon
Rogers, George (Kensington, N.)


Holman, P.
Mainwaring, W. H.
Ross, William


Houghton, Douglas
Mallalieu, E. L. (Brigg)
Royle, C.


Howell, Charles (Perry Barr)
Mallalieu, J. P. W. (Huddersfd, E.)
Short, E. W.


Howell, Denis (All Saints)
Mann, Mrs. Jean
Skeffington, A. M.


Hoy, J. H.
Mason, Roy
Slater, Mrs. H. (Stoke, N.)


Hubbard, T. F.
Mayhew, C. P.
Slater, J. (Sedgefield)


Hughes, Emrys (S. Ayrshire)
Mitchison, G. R.
Smith, Ellis (Stoke, S.)


Hughes, Hector (Aberdeen, N.)
Monslow, W.
Sorensen, R. W.


Hunter, A. E.
Moody, A. S.
Soskice, Rt. Hon. Sir Frank


Hynd, J. B. (Attercliffe)
Morris, Percy (Swansea, W.)
Sparks, J. A.


Isaacs, Rt. Hon. G. A.
Morrison, Rt. Hn. Herbert (Lewis'm, S.)
Spriggs, L.


Janner, B.
Moss, R.
Stewart, Michael (Fulham)


Jay, Rt. Hon. D. P. T.
Moyle, A.
Stonehouse, John


Jeger, George (Goole)
Mulley, F. W.
Stones, W. (Consett)


Jenkins, Roy (Stechford)
Noel-Baker, Francis (Swindon)
Sylvester, G. O.


Johnson, James (Rugby)
Noel-Baker, Rt. Hon. P. (Derby, S.)
Taylor, Bernard (Mansfield)


Jones, Rt. Hon. A. Creech (Wakefield)
Oram, A. E.
Taylor, John (West Lothian)


Jones, David (The Hartlepools)
Oswald, T.
Thomson, George (Dundee, E.)


Jones, Elwyn (W. Ham, S.)
Padley, W. E.
Thornton, E.


Jones, Jack (Rotherham)
Paget, R. T.
Ungoed-Thomas, Sir Lynn


Jones, J. Idwal (Wrexham)
Paling, Rt. Hon. W. (Dearne Valley)
Usborne, H. C.


Kenyon, C.
Pannell, Charles (Leeds, W.)
Warbey, W. N.


Key, Rt. Hon. C. W.
Pargiter, G. A.
Watkins, T. E.



Parker, J.
Weitzman, D.


King, Dr. H. M.
Paton, John
West, D. G.


Lawson, G. M.
Pentland, N.
Wheeldon, W. E.


Ledger, R. J.
Plummer, Sir Leslie
White, Mrs. Eirene (E. Flint)


Lee, Frederick (Newton)
Popplewell, E.
Wilcock, Group Capt. C. A. B.


Lee, Miss Jennie (Cannock)
Price, J. T. (Westhoughton)
Wilkins, W. A.


Lever, Leslie (Ardwick)
Price, Philips (Gloucestershire, W.)
Willey, Frederick


Lewis, Arthur
Probert, A. R.
Williams, David (Neath)


Logan, D. G.
Proctor, W. T.
Williams, Rev. Llywelyn (Ab'tillery)


Mabon, Dr. J. Dickson
Pursey, Cmdr. H.
Williams, Rt. Hon. T. (Don Valley)


McCann, J.
Randall, H. E.
Willis, Eustace (Edinburgh, E.)


MacColl, J. E.
Rankin, John
Wilson, Rt. Hon. Harold (Huyton)


MacDermot, Niall
Redhead, E. C.
Woodburn, Rt. Hon. A.


McGhee, H. G.
Reid, William
Woof, R. E.


McGovern, J.
Reynolds, G. W.
Yates, V. (Ladywood)


McInnes, J.
Robens, Rt. Hon. A.



McLeavy, Frank
Roberts, Goronwy (Caernarvon)
TELLERS FOR THE NOES:


MacMillan, M. K. (Western Isles)
Robinson, Kenneth (St. Pancras, N.)
Mr. Pearson and Mr. Simmons.

Mr. Stevens: I beg to move, in page 12, line 41, at the end to add:
(3) For the purposes of this section no regard shall be paid to the acquisition of shares on which a dividend is paid to which subsection (1) applies to the extent to which they are acquired by one member of a group of companies from another member of the same group. For the purposes of this section a group of companies shall consist of a holding company and its subsidiary companies as defined in section one hundred and fifty-four of the Companies Act, 1948.
We have just been discussing the question of trading companies. Now we come to something rather wider and that is the question of this kind of operation, but in a family of companies, a group, which consists of a parent company and one or more subsidiaries. Once more, as I said on the earlier Amendment which I moved, we are all in opposition to the business of dividend stripping; indeed, it benefits no one in the long run.
But, obviously, where there is a family of companies, a parent company and subsidiaries, the question of tax advantage cannot arise in a general sense, or even in a particular sense because the shareholders are one family. They are shareholders in the parent company and,

ipso facto, shareholders in the subsidiaries as well. Therefore, operations of this kind designed for better and simpler administration cannot be said to offend in any sense the feeling of this Committee on these operations.
We have suggested that to tie the matter down one could not do better than go to a Section of the law which has stood the test of time for ten years, Section 154 of the Companies Act, 1948, which sets out clearly and concisely those considerations which must be satisfied in order that a group of companies may, in law, be deemed to have been constituted. Therefore, I move this Amendment to exclude from the provisions of Clause 17 those which are concerned solely with one or more of a family of companies in the same group.

Mr. Page: As Clause 17 stands, it will undoubtedly penalise trading by companies in groups, in cases where there is no real loss to the Revenue at all. It seems to me that those companies should be excluded from the operation of the Clause.
Group operating is a very normal way of company operating. I am informed


that the Clause will penalise the company rearrangements and reconstructions which have been advised by the Inland Revenue in connection with overseas trading corporations. Companies which have, since the overseas trading corporation provisions of the previous Finance Act, made their rearrangements and reconstructions, would be caught under the Clause unless group operating is excluded. I urge my right hon. Friend to give very serious consideration to the Amendment.

Mr. Maudling: My right hon. Friend the Chancellor of the Exchequer agrees that my hon. Friend the Member for Langstone (Mr. Stevens) has a good point here in that the provisions about dividend stripping should not apply to companies operating within the same group. Obviously, companies operating within a group are in a quite different position from separate companies, and dividend stripping, in the normal sense of the word, does not arise at all.
My right hon. Friend is not willing to accept the Amendment in its present form, because the definition of a group of companies, although within the Companies Act, 1948, is not that which is normally taken for Income Tax purposes, where the normal test of group membership is a 75 per cent. holding of ordinary shares. That is a technical point.
The main reason is that it would make a big loophole in the general provisions because it does not confine its operation to profits earned while the paying company was a member of the group. Clearly, the Clause could be used as it stands to get round the general provisions. The Amendment is not acceptable, but if my hon. Friend would be prepared to withdraw it I will undertake on behalf of my right hon. Friend to introduce on Report an Amendment designed to meet the point of companies operating within a group, which I think it would be generally agreed should be covered. This is a particular case.

Mr. Page: May I point out that an Amendment which has not been selected would have met the very point to which my right hon. Friend has just referred?

Mr. Maudling: I had that point in mind, but I am sure that I should have

been out of order in saying anything about it.

Mr. Mitchison: We shall have to see what the Government propose on Report and consider the matter then. Meanwhile, may I ask the right hon. Gentleman a question on a matter which puzzles me a little?
The object of the Clause in general is to prevent the recovery of tax taken to have been deducted, in cases where it does not really represent anything, that is to say, to get back from the Revenue a sum of money which has no real existence. Is it impossible that the transaction between two companies within a group should not lead to that result?
Taking the group as a whole, could not the result of this exception be a benefit to the group of companies by reason of their being a group, which they would not have had if they had been a single company and which is given to them at the expense of the Revenue? I say quite frankly to the right hon. Gentleman that I always feel that when I ask questions about financial matters I am lucky if I understand a quarter of them.

Mr. Maudling: I would not enter into the question of how much any Member of the Committee understands of any particular aspect of any of these discussions. The answer which I hope the hon. and learned Member will find satisfactory is that what we will endeavour to do is to meet the point that the Bill has drafted would do a substantial injustice to groups of companies, but in meeting that injustice we shall not go so far as to enable those companies to indulge in dividend stripping. I hope that the Amendment we shall propose will allay the fears of my hon. Friend and of the hon. and learned Member.

Mr. Mitchison: I am most grateful for the last sentence of the right hon. Gentleman. Can we rely on this, that the Amendment will not put a group of companies in any better financial position than they would have been if, the ownership of the outfit being the same, it was a single company?

Mr. Maudling: I think I can say that that would be the object of the operation. I have tried to explain the object which would underlie the Amendment


which we will put forward and I must ask hon. Members to await that Amendment.

Mr. Stevens: I have no hesitation in saying on this occasion that, in view of the assurance I have had, I beg to ask leave to withdraw the Amendment.

Amendment by leave withdrawn.

Mr. John Rodgers: I beg to move, in page 12, line 41, at the end to add:
(3) Neither subsection (1) nor subsection (2) of this section shall apply so as to restrict a claim to relief under section three hundred and forty-one of the Income Tax Act, 1952, subsection (3) of section fifteen of the Finance Act, 1953, or paragraph 3 of the Third Schedule to the Finance Act, 1954, where a person as mentioned in subsection (1) of this section shall prove to the satisfaction of the General Commissioners or the Special Commissioners that the transfer or acquisition of shares in a company or a change or changes in the person or persons carrying on a trade or business or a reconstruction of companies was not a transaction, either alone or in conjunction with other transactions and arrangements, the main purpose or one of the main purposes of which was the avoidance or reduction of liability to income tax.
(4) Any person aggrieved by the decision of the said Commissioners not to give a certificate pursuant to subsection (2) of section three hundred and forty-one of the Income Tax Act, 1952, on the ground only that avoidance or reduction of liability to income tax was the main purpose or one of the main purposes of the transaction mentioned in subsection (3) of this section may by notice in writing given to the Commissioners of Inland Revenue within three months from the date on which notice of the said decision is given to him make an application to have his claim for relief heard and determined by the Special Commissioners, who shall hear and determine the claim in like manner as an appeal made to them against an assessment under Schedule D, and all the provisions of the Income Tax Act, 1952, relating to such an appeal shall apply accordingly with any necessary modifications.
I am encouraged in commending this Amendment by the remarks of the Paymaster-General on the previous Amendment. My Amendment seeks to deal with companies which at the moment are being acquired and are not members of a group but later may become members of a trading group. The first part of my Amendment is an attempt to restrict the application of the present subsections (1) and (2) so that they would prevent bona fide company reconstruction and mergers coming within the operation of these subsections. In its present form, I believe Clause 17 goes beyond its proper function of stopping

tax avoidance. I believe it will penalise and prevent transactions which are absolutely desirable in the commercial life of the country.
I have in mind normal schemes of reconstruction and mergers of companies in which one of the companies has incurred a general trading loss but is still fully operative and carrying on a trading business. In particular, I am thinking of smaller firms, including many family businesses, which may have been hit by a temporary decline in business, or may have been adversely affected by the operation of the credit squeeze, whose only chance of survival may be a merger with a company which possesses accumulated reserves and which may be able to sustain the loss of the first company, buy it and keep it in being.
Clause 17 as it stands in its published form would prevent a great many reconstructions and mergers which are legitimate and helpful in the economic life of the country. Its provisions would cause companies to go out of existence and their goodwill, industrial and commercial know-how and integrated labour force would be lost. Unless an Amendment of this kind is approved, this House in the future will have to approve of measures which would allow larger and richer companies to take over genuine trading concerns which have made a loss in order to keep those companies in being and to keep their labour force integrated. Clause 17, as drafted, will prevent the economic and sound type of reconstruction, with little gain to the revenue, and it will operate to the detriment of industry and commerce generally.

Mr. Diamond: Will the hon. Member say why it will prevent it?

10.0 p.m.

Mr. Rodgers: I will come to that in a moment. I entirely agree with the Chancellor's desire to prevent a reconstruction aimed at taking over a company which has made a loss and the only asset of which is its loss—a company, in fact, which has gone out of business, which has a name and a loss and which is not paying a cash dividend. Such an operation should not be tolerated. It is quite different, however, from the company which is legitimately trading, which has incurred a loss and


which cannot continue to trade unless somebody takes over the loss and refinances the company.
Providing the company which takes over the smaller company, which is making a loss, carries on the legitimate trading of that company, carries on with its normal vocation, I believe that it should be possible to offset the loss against the profits of the acquiring company. Without this there will be no take-over of that smaller company. To answer the hon. Member for Gloucester (Mr. Diamond), the merger will not take place except on these terms. It is only this type of legitimate trading and the continuation of a legitimate trading company which I wish to protect. The first subsection of the Amendment seeks to do that.
The second subsection is to safeguard the revenue and the application of subsections (1) and (2), where the merger is a bona fide commercial transaction. It is a distinct issue from the questions normally considered for the purposes of Section 341 of the Income Tax Act, 1952. It is obviously bound to be a difficult decision to make whether a take-over bid is a bona fide business transaction not aimed at tax avoidance but at keeping in trade a company which otherwise would go under. I believe that a body such as the Commissioners of Inland Revenue, who are very wise and very experienced in this matter, is the right body to interpret it. If relief is still refused under Section 341 on the ground that the main purpose of the merger is tax avoidance, there ought to be an appeal in the normal way, as is the case if a tax claim is disallowed, where there is a right of appeal. In this case, too, I think there ought to be provision for an appeal to the Commissioners.
I hope, therefore, that my right hon. Friend the Chancellor will consider the purpose of the Amendment, which is quite seriously to help and further those companies which are trading, which have a legitimate business, which have fallen on evil days but which can continue to make a profit if somebody will take them over and take over their losses, too. They should be exempted from the present strictures on tax avoidance, which would apply to them under the Clause as drafted.

Mr. Houghton: The Amendment was the one to which I referred in the course of my remarks earlier. It seems to introduce a feature into the administration of the Income Tax which the Chancellor suggested would be repugnant to him—that of giving the Commissioners of Inland Revenue the power to sit in judgment on the motives of the taxpayer in embarking on certain transactions.
I quoted the words put into the Excess Profits Duty and the Excess Profits Levy legislation which achieved this purpose the other way round and gave the Commissioners the power to say that in their view a transaction was an artificial device which had for its purpose wholly or mainly tax avoidance. This seeks to provide that where the taxpayer can prove that he was innocent of any such intention and that he was genuinely undertaking this transaction in pursuance of a perfectly legitimate purpose the Commissioners shall exempt him from any penal effects of the Clause as drafted.
We on this side would not feel that that was an entirely undesirable procedure. It would enable other safeguards in our tax law to be introduced which would give the Commissioners of Inland Revenue power to judge motives, and it might enable some of the anti-avoidance Clauses to be more tightly drawn so that the innocent, on proving their innocence, would escape and the Inland Revenue would be the judges subject to the provisions of appeal to a higher authority. It is, however, a new feature of the administration of the Income Tax, and I am sure the Chancellor will approach it with considerable caution, to say the least of it. We shall be interested to hear what the Paymaster-General has to say about it.

Mr. Maudling: I do not want to enter into the question of the "main purpose" point, because our experience of legislation which refers to the main purpose of a transaction leads one to suppose that in practice it is not easy to interpret.
I suggest to my hon. Friend the Member for Sevenoaks (Mr. J. Rodgers), who moved the Amendment, that he has slightly misconceived the purpose of the Clause, which does not have the effect that he imagines. My hon. Friend was


making the case for the position in which a company which is trading buys another company which has a loss and offsets that loss against its trading profits. There is nothing in the Clause to affect that position in any way. I can, therefore, set my hon. Friend's fears at rest. I agree with him that the question of acquiring companies with a loss and offsetting that loss against existing profits is an important feature, but the Clause does not affect that in any way.
The purpose of the Clause is a different one. It has its effect when the company that is doing the buying has a loss and the company which is bought has liquid assets and those liquid assets are then transferred to the buying company and the buying company claims against the loss which it is making the grossing-up of the tax on the dividend it receives from the company which it has bought. That is an entirely different operation. I assure my hon. Friend that the point he has in mind about the acquisition of companies which are making a loss—and it is a legitimate point—is not affected by the Clause.
It is, I agree, conceivable that the Clause might interfere with legitimate business dealing, but my hon. Friend will find that it is drafted to ensure that ordinary trading concerns which buy companies with liquid assets as a matter of legitimate and normal business are safeguarded, because the Clause contains the same safeguards as were in the original 1955 legislation on this subject.
There are two safeguards. First, any normal dividend paid by the company which is
bought to the buying company within a year of the transfer is excused from scrutiny by the Inland Revenue. Secondly, dividends paid after the acquisition by the company that is bought to the buying company and which fall within the scope of the dividend-stripping legislation will not be caught except to the extent by which they exceed in the aggregate the whole of the profits made after the acquisition of the company which are available for such dividends. In other words, dividends paid by the acquired company to the acquiring company, as my hon. and learned Friend the Financial Secretary explained on an earlier Amendment, would not be caught by the Clause except in so far as they are dividends paid out of assets accumulated by the acquired company before the act of acquisition.
The whole point of this legislation is to prevent the payment of dividends out of those already existing reserves and the claiming of a tax refund of an artificial character on those reserves which had accumulated before the act of acquisition. My hon. Friend will find that the Clause is adequately designed to ensure that, where there is a legitimate acquisition by one company of another company with large cash assets, any dividends passing from the acquired company to the acquiring company in the normal way of business will not fall within the mischief of the Clause. The main point, however, to which my hon. Friend referred—the acquisition by a company making a profit of a company making an accrued loss—is not affected in any way by the Clause. The purpose which he has in mind is, therefore, achieved without the Amendment.

Sir Keith Joseph: I support my hon. Friend's main contention, and I am sure that he will be as glad as I am to hear my right hon. Friend's general acceptance of the intended thesis of this Amendment. What my right hon. Friend has said is extremely satisfactory. I would ask him only to make absolutely sure, before Report, that in this relatively uncharted field the legitimate transaction he has himself accepted as absolutely proper is sufficiently protected.
My right hon. Friend limited the exemption from the Clause to the situation in which the acquired company's dividend to the acquiring company did not transcend the post-acquisition profits made by the acquiring company. He went on to say what is a slightly different thing, it seems to me, that in that case the post-acquisition profits might be drawn from pre-acquisition assets.
What my hon. Friend and I want to be sure of is that where the acquired company has no or only very slender assets the profits made by the acquiring company in co-operation with the acquired company can be fully set off against pre-acquisition losses of the acquired company. If my right hon. Friend can give that assurance it will bring great relief. May I ask my right hon. Friend whether he will look at this whole matter once again before Report, so as to make absolutely certain that the assurances he has given us cover the whole legitimate field?

Mr. Maudling: It is my normal practice, after making a speech in Committee on a complicated subject, to ask those who advise us whether I was right or not, and in this case I will certainly ask them again.

Mr. H. Wilson: Will the right hon. Gentleman take account of the fact that there is a new Clause on the Notice Paper which, as it appears for the first time only today, he may not have had time to study? Will he, before Report, have a look at that to see whether it does not give effect more fairly than any other proposition put forward to discriminating between illegitimate transactions which the hon. Gentleman wants to kill and the legitimate company he has in mind?

Mr. Maudling: If it is on the Notice Paper I shall hardly be able to avoid looking at it before Report.

Mr. J. Rodgers: I am very grateful to my right hon. Friend for his assurance, but I hope that he will make assurance doubly sure and look at this matter again before Report. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed. That the Clause stand part of the Bill.

Mr. Houghton: I should like to ask the Paymaster-General or the Financial Secretary a question about the Clause. Clause 16 is attempting to close loopholes in the closure of the loopholes. It is a postscript to Section 4 of the Finance (No. 2) Act, 1955. This Clause 17 is dealing with a different form of dividend stripping. The original check on dividend stripping was directed against the acquisition of shares bringing liquid assets by finance companies, charities, which might claim exemption and get repayment of the tax and superannuation funds.
This Clause deals with a trading company which buys shares bulging with pre-acquisition profits or liquid reserves and then disgorges the gains from the company acquired; and in certain circumstances the firm which is acquiring the company can regard these dividends as taxed income and get the benefit of the relief by setting them off against their losses.
10.15 p.m.
Was this form of dividend stripping known to the Chancellor of the

Exchequer in October, 1955? Is this something new that has occurred since? Is this the answer of some people to the 1955 legislation, or was it something that was known but was regarded by the Chancellor at that stage as not worth providing for by special legislation? If so, one might ask whether the Chancellor had this and possibly other forms of tax avoidance in mind when he uttered the warning. This is a perfectly innocent inquiry. There is no malice aforethought at all. I am not attempting to revive the passions of an earlier debate on retrospective legislation.
The Inland Revenue, with all its sources of information on the latest tax dodge, and the Chancellor, who has his ear to the ground in Somerset House, must be constantly informed of new developments. It seems to be odd that this provision should be necessary in 1958 when we saw no signs of it in 1955, and yet it is not something which could be undertaken only subsequent to 1955. The risk of this happening was there before, and possibly the first signs of it existed then.
It seems to us that sometimes the Chancellor's advisers are giving him danger signals of fresh forms of tax avoidance and saying, "Mr. Chancellor, we are bound to tell you that this is happening. It is not serious yet, but there are signs that it is growing and you ought to take notice of it." The Chancellor may say, "I have quite enough in the Finance Bill this time to take all the parliamentary time that is available. It must wait." Or he may say, "Is it serious enough at this stage to justify the introduction of preventive legislation?" I do not know what goes on between the Chancellor and the Inland Revenue, never having been privy to that kind of discussion. It would be quite improper for me to attempt to say what I think the Inland Revenue is telling the Chancellor, but these are quite important inquiries. How does this work? Who does what and when?
When, in years gone by, devices
which subsequently have been checked by legislation have appeared, the Chancellor sometimes has felt unable to take steps until it was quite plain that there was either a racket or a loss to the Revenue with which he must deal. I remember distinctly that in the years before the war


there were bogus dispositions in favour of minors. They were widely canvassed by those in the trade. One could send two guineas to a firm which would send back a form of words. One had to tell a neighbour that he should also apply for the form because unless the neighbour was in it it did not work.
Both the first applicant and his neighbour had to undertake these covenants in respect of their respective children in some kind of connivance, so that when the time came when it was desired to abrogate them it could be done by mutual consent. It was that kind of thing which the Chancellor left far too long before he took step to deal with it.

Mr. Page: As far as I can recollect, that existed for only two years, back in the 1930s.

Mr. Houghton: Yes, but I believe, and I speak entirely from recollection, that by the time the Chancellor took steps to deal with it, close on 100,000 of these bogus dispositions had been received by the Inland Revenue. It may be only an indication of how that kind of avoidance spreads like a prairie fire, and maybe only one year was enough for such a device to gain wide currency.
I will now get back to the point I had made and the question I had asked, because that is the only purpose I have. It would be interesting to the Committee to hear a little of the inside story of Clause 17: how it got here, when it started, was it known when the Chancellor of the Exchequer uttered his warning, was it really this that the Chancellor was giving a warning about, have we misfired entirely by concentrating our debate on retrospection on Clause 16 and ought we to have directed our fire to the retrospective Amendment to Clause 17?

Mr. Maudling: The hon. Member is on an important point when he talks about the point at which Chancellors of the Exchequer act against tax avoidance, because there may well be circumstances where there is evidence of a small scale avoidance. To deal with that, however, there would have to be legislation of an irksome character affecting the entire business community of the country. Therefore, any Chancellor would hesitate to introduce that if the scale of the avoidance is small. So any Chancellor, in deciding to take action, must take into

account not only the nature but the scale of the avoidance.
As regards this particular form of avoidance or tax device, this is one of the forms of dividend stripping which have grown
up since the 1955 legislation and were not in the mind of the Chancellor of the Exchequer at the time of the passing of the 1955 legislation. That answers the principal point of fact which the hon. Gentleman asked.
On the question of how the Inland Revenue became aware of the development of anti-taxation devices, the hon. Gentleman is such a knowledgeable man in his sphere that he would not expect me to disclose, even if the Inland Revenue had told me, how it discovers these things, because the more one discloses how the Inland Revenue acquires information about tax avoidance the less are its chances of defeating it.
On the specific question, the answer is that this is one of the forms of dividend stripping which have emerged since the 1955 legislation.

Mr. Diamond: Before we leave this Clause, I hope the Paymaster-General can go a bit further and help us a little more. I am looking at the Second Reading speech of the Financial Secretary, and his words on dividend stripping are, if I may say so, much more knowledgeable and acceptable to this side of the Committee.
The Financial Secretary referred to these practices as avoidance tricks; that is, the practising of dividend stripping by a loss company of the kind referred to in this Clause are those who are concerned with avoidance tricks. The hon. and learned Gentleman said:
Finally and this is where the most serious inroads are being made upon the Exchequer, dividend stripping has been practised on a large and increasing scale by companies with ordinary trade losses.
He says farther down:
…the income, as I hope I have made clew, is artificially contrived to milk the Exchequer."—[OFFICIAL REPORT, 12th May, 1958; Vol. 588, c. 42 and 44.]
Those were straightforward, good, Anglo-Saxon words which we all understand and there was no such care in choosing his words as the Paymaster-General has shown. They show clearly where the Financial Secretary stands.
We are told that this was not known
to the Chancellor of the Exchequer in


the autumn of 1955, nearly three years ago. It is apparently known now and is creating serious inroads. It may not have been known to the Chancellor in 1955, but it was known then, and the point I am making is that here is a clear tax avoidance trick, to use the words of the Financial Secretary, making heavy inroads on the Exchequer, which was not known to the Chancellor in the autumn of 1955, has been widely practised ever since, and it is not until 1958 that it comes to the House of Commons and legislation is taken to deal with it. This is virtually a three-year lag in loss of Revenue as the result of something which the Financial Secretary called a trick, something which nobody in the Committee wants to support or even see.
What happens if the Clause does not prove satisfactory and further methods are found of overcoming its provisions? These actions are making heavy inroads, and they take three years to reach the official knowledge of the Chancellor and this Committee. What will the Chancellor do about it? Will he say that he will ensure that the intention of Parliament is carried out because we shall now have a Resolution and it will be a case of what Parliament decides and not merely of the Chancellor feeling entitled to run away from a number of leading Conservative Ministers and not carry out the obligations which they have previously undertaken.
Parliament will now decide against dividend stripping by means of the loss company, and various individuals will find ways of overcoming that. What will the Chancellor do about those methods of overcoming the present provisions during the next two or three years before he has been made fully cognisant of them and before he has decided that they have reached a sufficient volume for them to be dealt with publicly? We understand that as soon as one deals with them publicly one brings them to the attention of people who might not otherwise know about them. Therefore, the Chancellor, quite properly, cannot deal with the matter at his first suspicion that it is becoming a general practice.
This is another argument which supports the reason for the delay. We have suffered delay, and delay will arise again. We have Finance Bills every year,

and we know that loopholes will be discovered. Having regard to the fact that this trick does nobody any good—not a single nut or bolt is produced—but merely takes something from the Revenue and adds it to the burden of the honest taxpayer, what will the Chancellor do in the future to ensure that effect is given to what we are about to determine?

Mr. H. Wilson: I am sure the Chancellor will agree that we have been extremely generous with him in curbing our natural feelings about dividend stripping and our natural oratory and eloquence to enable him to get this very contentious matter through in so short a time.
My hon. Friend the Member for Gloucester (Mr. Diamond) has made a very important point. While the present Government are in office we seem to get legislation of this kind every two and a half years. My hon. Friend has fairly asked the Treasury Bench what they intend to do about any new developments. In view of what has happened in the last two years we can have no confidence in their ability to tackle any of them, and despite our disappointing experiences over the past two or three years, we are entitled to ask the Chancellor to tell us that if new methods of tax avoidance on the lines mentioned by my hon. Friend are devised he will not hesitate in due course to recommend to whichever of his right hon. or hon. Friends becomes Chancellor next year—that is giving the right hon. Gentleman a very long run; we have had four Chancellors of the Exchequer in two and a half years—that legislation will be introduced immediately to deal with the problem, if necessary with retrospective effect.
Will the Chancellor give us that assurance tonight? We are entitled to ask for it. After all, the Lord Privy Seal four Chancellors ago—it is a long time in cancellarian time—gave that assurance, or authorised his junior Ministers to give it, with speed and alacrity. Our disappointment this afternoon was not at the inadequacy of the undertaking; it was at the failure to implement it. I hope that the Chancellor will give us the assurance that he will introduce legislation of the kind required, retrospective if necessary, but that he will think for a moment before he gives that assurance because we would like to know whether, in giving it,


he will be sincere about recommending that it be implemented when the time comes.

Mr. Amory: I find no difficulty in giving the right hon. Gentleman the assurance that if there come to my notice in the future devices which are for tax avoidance or evasion of these types, and which seem to me to provide loopholes which should be closed, I shall bring forward amending legislation in due course. As to the form of that legislation, or whether it will be retrospective, I cannot anticipate my next three years' Budget statements.

10.30 p.m.

Mr. H. Wilson: That answer is extremely disappointing. I hope that the Chancellor will show a little more courage. After all, one could understand the Lord Privy Seal, two and a half years ago, being rather cautious about it because he may have foreseen that the right hon. Gentleman would be succeeding him, with two intermediate Chancellors and that any pledge given in the autumn of 1955 would not be fully carried out this year because the present Chancellor has not guts in this matter when he is attacked from behind him.
However, the right hon. Gentleman may be assured that by the time his promise comes to be implemented there will be a Chancellor from this side of the Committee, so I hope that he will think it possible to give an undertaking which will make certain that it will be carried out.

Mr. Stevens: Can the right hon. Gentleman give the Committee an assurance that the promise he has just made will be implemented?

Mr. Mitchison: Mr. Mitchison rose—

Hon. Members: Answer.

Mr. Mitchison: Can the right hon. Gentleman answer a point which does not involve any forecasts about his next one, two or three Budgets, if any? Does he still regard the undertaking given in 1955 as in force, or as discharged by breach? His right hon. and learned Friend the Solicitor-General will tell him that it is possible for an undertaking to be discharged by breach.

Mr. Amory: If the hon. and learned Gentleman is referring to the warnings given by the then Financial Secretary and the then Economic Secretary three

years ago, I have already said that so far as those warnings are relevant to any question which arises in the future they will, no doubt, be one of the factors which I shall take into consideration when the time arrives at any stage during the next three, five or ten years.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 18.—(SETTLEMENTS.)

Major W. Hicks Beach: I beg to move, in page 14, line 9, at the end to insert
or
(b) the wife or husband of the settlor has before the expiration of such period released or disclaimed all interest to the whole or any part of the property comprised in the settlement and all interest in the income from the whole or any part of the property so comprised to which he or she may become entitled in the event of the exercise of any such power".
The Clause is designed to overcome a difficulty for the Inland Revenue which has arisen from a decision in a case known as the Saunders case, which provided that Where a settlement on a child was with the direction to accumulate until that child—or children—was 21, the capital of the settlement could not be disposed of wholly, as happened in the Countess of Kenmare case, of which we are all aware.
I do not quarrel with the Inland Revenue's decision to overcome this case, but the sole object of the Amendment is to ensure that the concession given to the taxpayers under subsection (4) of the Clause has its full effect. Subsection (4), which, I think, is a very proper concession to the taxpayer, provides that where a settlement, which was formerly exempted from charging the settlor with taxation liability, is caught by the Clause, then, in certain circumstances, the interested parties are given an opportunity within three months to take appropriate steps to bring that settlement, which in a vast number of cases has been entered into quite genuinely, outside the tax. That, I think, puts the matter briefly and fairly.
The important provision so far as this Amendment is concerned is that of paragraphs (a) and (b) of subsection (4). It might be helpful to the Committee if I read them out. I will not read the opening part of subsection (4), which provides


that in the following circumstances the income concerned of settlements affected shall not be treated as the income of the settlor for the purposes of tax liability if
(a) any power—
and I want to stress the word "power"—
by reason of which they or it would fall to be so treated has been released or disclaimed at the expiration of three months from the passing of this Act; and
(b) neither the settlor nor the wife or husband of the settlor has received or is entitled to any consideration in respect of the release or disclaimer.
So far as it goes, that is a perfectly proper provision, but difficulties will arise. I am a practising solicitor and have been concerned in a number of settlements of this nature. From a practical point of view, the difficulty will arise in settlements upon children. It will arise from the word "power," because in many cases, some of which have been excluded some fifteen or twenty years, the power to release capital in certain circumstances, not to the settlor or the settlor's wife, is vested in trustees of the settlement. In fact, in the normal type of settlement that power of making advances would be vested in the trustees.
The difficulty which arises in this very welcome concession by the Government is that a trustee in a fiduciary capacity so far as infants are concerned cannot in any circumstances, either under an English settlement or under a settlement governed by laws abroad, release a power to the detriment of the benficiary under the settlement wherever he or she may be.
It is, of course, true to say, I suppose, that under the new Variation of Trusts Bill, which is now in another place, it might be possible to make some such application. In point of fact, however, the three months' period given under the Clause will not be long enough because, as we know, the Bill will not become law until the end of July and then we have the long Recess.
Therefore, all that my Amendment seeks to do is to try to implement what I believe is the intention of the drafters of the Bill, namely, that where the settlor or any wife of his takes steps to release any possible interest under a settlement of this sort affected by Clause 18, they should receive the benefit of the concession which this Clause provides.
This is a complicated matter. We all know that these irrevocable income settlements for life were first dealt with in 1924 and 1926 and, subsequently, under the 1947 Act. They are now incorporated in the 1952 Act under Chapters II and III of Part XVIII. The object is to give a benefit to a perfectly proper settlement. I hope very much that the Government will give an undertaking to give this matter careful consideration. Unless this provision is made serious cases of hardship will be caused and I am sure that the Government have no intention of bringing them about.

Mr. Charles Fletcher-Cooke: Like my hon. and gallant Friend the Member for Chelmsford (Major Hicks Beach), I am grateful to the Government for giving this opportunity, limited though it is, to persons who, many years ago, may have entered into these settlements in the faith that they would not attract tax. I am grateful that an opportunity for rectification is provided by which they may release a disclaimer from interest for themselves or their wives.
I am particularly anxious that this opportunity for rectification will not be made a mockery of, as in many cases it will be by the Clause being drawn too narrow. My hon. and gallant Friend has referred to cases where only trustees may release, and, of course, they can only release, if at all, with the sanction of the courts. The courts do not sit in August and September, which are two of the three crucial months.
There are also other cases which I think require even more consideration. My hon. and gallant Friend's Amendment seeks to ensure that, provided the husband or wife, or both, as the case may be, themselves declare their interests, the fact that the power, as opposed to the interest, is not disclaimed by the trustees shall not be fatal. That is how I read the Amendment, but even that may not be good enough in many cases. There is the case, certainly of the wife, who is under a disability through being an infant, or of either spouse being under a disability through being of unsound mind, or something of that sort.
Even more important is the case of the future wife, the unknown woman, who has not yet been married and cannot disclaim within three months because she is not yet the wife. That would not be covered by the Amendment, yet it is


a very worthy case because it is ridiculous that the whole settlement should be caught in these circumstances, as it would be if this opportunity for rectification were not widened.
One of the limiting factors in this opportunity for rectification is in paragraph (b), which says:
neither the settlor nor the wife or husband of the settlor has received or is entitled to any consideration in respect of the release or disclaimer.
I suggest that that is too harsh. In the first place, it may very well be, owing to the rather esoteric doctrines of equity, that if one surrenders an interest in futuro without any consideration whatever, that does not operate as a valid surrender, because one cannot give a future gift. Therefore, there ought to be a provision inserted other than an anomalous consideration. More important than that, if the Amendment is accepted, as it should be, and if the possibility of applications to the courts is considered in the case of trustees and settlors or their wives who are infants, for example, or unborn, or future, as they may be, the court may well insist as a term of variation of the settlement that some consideration be given. They may not agree to the release of this power unless there is a quid pro quo.
That has been the sort of term that the courts in the alteration of terms of settlement have insisted on in the past. It would be very unfair if persons who had entered into those settlements many years ago were caught between the cloven rocks of subsection (4) in its present form, which says that there must be no consideration of the requirements, and the courts, which say that there must be a consideration if these interests are to be released.
At this late hour there is no purpose in flogging the point, but if, in many cases, this is to be anything more than a mockery, I suggest that the opportunities must be widened, that the terms must be widened and, above all, that the timing must be widened. In those hopes, I support the Amendment.

Mr. Mitchison: The hon. and learned Member referred to the wife of a settlor and pointed out the difficulty of a wife in futuro. Has he considered the case not so much of a wife in præsenti as a wife in prœsentibus, because another subsection

of the Clause provides that it will apply to settlements made anywhere, and I believe that there is a Sultan of Foa who has 100 wives, and one wonders whether they are all required to disclaim their interests in the settlements made in such cases or whether it will be sufficient if one wife or a representative wife disclaims interest. Perhaps the hon. and learned Member could tell us.

Mr. Fletcher-Cooke: I hesitate to be questioned on the law, particularly on that in Mohammedan countries. I suggest that the peculiarities of English equity belong to the monogamous society of this country, and I very much doubt whether the complicated concept of trusts has ever reached the Eastern end of the Mediterranean.

10.45 p.m.

Mr. Mitchison: I am sorry to press the hon. and learned Member a little further, but he will remember that one of the two cases mentioned was the settlement made in Bermuda, and yet, of course, it came into question in matters of English taxation. If Bermuda, why not Foa?

Major Hicks Beach: This is a matter of English law and under English law one is allowed only one wife.

Mr. Mitchison: Are we to take it that the Inland Revenue, for the purposes of this Clause, does not recognise polygamy? If so, how is the representative, true or only wife to be selected?

Major Hicks Beach: One wife at a time.

The Chairman: Is anyone to reply to the debate?

The Solicitor-General (Sir Harry Hylton-Foster): Fascinated by the studies of these customs, with which the hon. and learned Member for Kettering (Mr. Mitchison) is more familiar than I, and contemplating, at the same time that my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) is a bachelor, I wondered where we were going and what was a quorum in Committee of wives!
May I thank my hon. and learned Friend and my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) for raising this point. I say forthwith that in matters of this kind


I hope that it is not expressing undue modesty for the Government in office to say that it is the type of technical provision about which any Government, I hope, and certainly my right hon. Friend, would be anxious to gain all the wisdom that the Committee can give and all the representations which one gets after a Finance Bill has been published. That applies to this matter as to any other.
I have only one trifling correction to offer to the Committee on the words uttered by both my hon. Friends. In terms of time it is not quite a question of the crucial three months; it is three months after the Bill becomes law, which is much more like six months. One ought to be thinking of it on that basis, but let me say at once that this is a let-out for the settlement capable—to use post-Iron Curtain phraseology—of being purged. If it can be properly purged in proper cases the object is to make this let-out work. We would desire only, as my hon. and gallant Friend and the whole Committee would, to see it work, and if, on examination, the time at present allotted seems to be too short we should be anxious at once to put it right. But it is necessary to think of it in terms of six months rather than of three.
The next point is about consent. I confess that we should like to look at the kind of cases which my hon. and gallant Friend has in mind. It is not so easy at the moment to think of bona fide cases in which this would be a trouble. Ordinarily, the trustees in a matter of this kind are persons in whom the settlor has confidence, and they are unlikely, if they can, to refrain from releasing or disclaiming if the power is vested in them and he so desires it.
It may be said they cannot do that if they are in a fiduciary position in relation to beneficiaries, but in circumstances like these if the beneficiary gives consent—and I suppose most of them will be able to—they will, in practice, consent and there is no difficulty if they do consent. When the Bill to which my hon. and gallant Friend referred becomes law, as I duly hope it will, at least it will be farther from this six months than it is, because it has passed its Second Reading in another place and I see no reason to anticipate difficulties;

and the jurisdiction of the court in this field will be widened immensely beyond where it is at present.

Mr. Mitchison: Retrospectively?

The Solicitor-General: No. Not retrospectively, but it will not matter whether the powers of the court are varied retrospectively because the disclaimer or release here contemplated will not be in terms retrospective under the operation of the Bill, as I now see it, anyhow, in relation to the time when this power becomes available to the court.
I doubt whether I am justified in detaining the Committee further on the point of time in the context or the point of consent in the context, because I am here and now declaring that we should like to look at this point again, and will look at it again before a further stage, because it is the common object to see that this let-out we provide—and which, I hope, has the approval of the Committee—should be applied in appropriate cases and does work.
I ought to explain to my hon. and gallant Friend one at least of the reasons—and, at the same time, cover one of the points raised by my hon. and learned Friend—why my right hon. Friend could not accept the Amendment in the form in which it stands. We attach importance to the provision in subsection (4, b) which I confess I have fallen into the habit of calling the "anti quid pro quo" provision. We must maintain a provision of that kind because, without it, we might leave the let-out widely open to abuse. Obviously, the person releasing or disclaiming could receive back funds from the settlement in the guise of consideration for the release or disclaimer: this effect is, in fact, a part of the mischief against which the Clause as a whole is aimed, and because my hon. and gallant Friend's Amendment does not cover this point my right hon. Friend could not accept it as it stands. But I do declare that we should like to, and will, look again carefully at this point before the next stage and I hope that with that assurance my hon. and gallant Friend will feel justified in withdrawing his Amendment.

Major Hicks Beach: I must make two points. First, my right hon. and learned Friend mentioned that in most cases it would be possible to get the consent of


beneficiaries concerned, but most of the people concerned in the settlements I have in mind are infants. Secondly, his argument upon the period and the date of the Bill is not practical, for, even if the Bill becomes law in July, the Long Vacation begins on 1st August, and the courts do not reassemble until October. In view of this, I am sure that he will bear this point in mind. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, That the Clause stand part of the Bill.

Mr. Fletcher-Cooke: I do not want to detain the Committee long, but I notice that a learned commentator, writing on this Clause in the Conveyancing and Property Lawyer, says:
One can only hope that the whole Clause will receive the severest scrutiny from the Legislature".
That being so, I cannot let the Clause pass without one or two words, at least of interrogation.
The Clause, according to the Chancellor of the Exchequer in his Budget speech, was purported to restore the law to what was originally intended. That is what he said. So that if, in fact, any part of the settlement capital or any capital can go to the settlor or his wife, a proportion of part of the income should be treated as the settlor's for tax purposes. That is a worthy motive and I do not think that anyone objects to the reversal by the legislature of a decision in the Saunders case. But what some of us fear is that this very long and difficult Clause goes much further. Why is it not possible simply to amend Section 404 of the original Act, under which the Saunders case was taken, by inserting the words "wholly or partially" in the relevant subsection?
The Committee will recollect that the device used in the Saunders case was to leave, as it were, permanently and irrevocably within the settlement a nominal figure of £100, and, therefore, the settlement was not and could not be wholly revoked because £100 always had to remain. Nothing was more of a device than that, simply because the word "revoked" was held by three of their Lordships, though not by the remaining two, to mean entirely revoked instead of either partially or substantially revoked. Now, if the object is merely to reverse

Saunders, can it not be done simply by inserting in the original Clause the words "wholly or partially", and thus obviously defeat the Saunders mischief both as regards capital and income, because I conceive that although Saunders dealt only with capital the Revenue must deal with both capital and income, or a similar device will be produced in the case of income?
Instead of that, we have nearly two pages of words, and we are suspicious of their meaning, because some of them appear to have no very intelligible purpose. May I give an example? In both subsection (1, a) and subsection (2, b), there are alternatives. The first seems, according to instruction of the English language, to be included in the second alternative. The simplest case is to take subsection (2, b), which I will read:
In subsection (2) of the said section four hundred and four"—
of the Income Tax Act, 1952—
the references to a power to revoke or otherwise determine a settlement or any provision thereof shall be deemed to include references to"—
Then there is paragraph (a), and—
(b) any power to diminish the amount of any payments which are or may be payable under the settlement or any provision thereof or which are or may be so payable to any person other than the settlor and the wife or husband of the settlor.
11.0 p.m.
What can it mean? This, in the first limb of (b), is also included in the second, and the same applies to subsection (1, a). These are only examples. The clock is striking eleven and the Committee will not want me to enter into an elaborate exegesis of this very long Clause, though I should be happy to do so on another occasion. We are frankly suspicious that the Revenue is doing more than simply reversing Saunders; for if its purpose is merely to reverse Saunders, what is wrong with doing it in the short form which I have suggested?
There is another fear. The power to revoke, or to diminish, as it now is, might be held to capture a very common form of settlement which is, in common sense, irrevocable, by which a man agrees in every year when his income reaches a certain point, but not otherwise—that is, I think, the Tennant Case—to settle it year by year on other persons, not his children or wife, but persons who are strangers for this purpose.
It may be held that it is in a man's power to diminish his income by not earning as much as in the previous year. If it is in his power to diminish his income, would such a settlement, which is for all practical purposes irrevocable and from which his family would have no advantage, nevertheless be caught? It would be beyond all common sense if it were. We must remember that judges have said, time and time again, that all they can do is to read the words strictly, however often the result might be ridiculous. Therefore, that might be held to be caught—a result which would not arise if a simpler method of achieving this operation were adopted.
There are many other matters of this kind. Indeed, the scrutiny which the learned author of the article to which I have referred says should be applied to this Clause should be applied to the choice of the date, 16th April, 1958, in subsection (4). That, of course, was the day of the introduction of the Budget. It is only settlements which were entered into before that date that have an opportunity of rectification, small though that is at present.
I plead most sincerely with my right hon. and learned Friend to advance that date to the date of the introduction of the Finance Bill, at least, when the full terms of the veto could be seen, as it was not on reading the Chancellor's statement on the Budget when, very shortly as must inevitably have been the case, he said that his intention was to reverse Saunders and no more. Since then, and before the publication of the Finance Bill, rightly or wrongly, a number of settlements have been entered into which would not have attracted tax under Section 404 of the 1952 Act even if the Saunders case had gone the other way.
In other words, they do not depend for their validity on the Saunders decision. Therefore, it seems to me that they should be given an opportunity to rectify their settlements when they have seen the full terms of the Government's proposals, as has been given to those whose settlements were created before 16th April.
We cannot give this Clause the scrutiny which we should like. Its verbiage is enormous, as is its length. I hope that the Solicitor-General will,

if he can, explain in his inimitable way, which always convinces us, why it is necessary to put this in such an extraordinarily artificial form instead of doing it in the simple and concise way which my Amendments, which were not called, suggested.

Mr. Diamond: I would not wish to delay the Committee more than a few minutes to deal with this question, and to draw a conclusion, if I can, from the way consideration is given under this Clause to those who have attempted to dodge Surtax, compared with the consideration given earlier to the suggestions coming from this side of the Committee to help the Government in not giving the benefit to the avoider of Income Tax.
I am not a lawyer, and it is with trepidation that I offer any comment on a matter so clearly the province of lawyers. But we are all Members and we all have the responsibility of trying to understand the legislation which we are drafting. The best way of making sure I understand it is to say what I believe it to mean, and, no doubt, the Solicitor General, or whoever is to reply, will correct me if I am wrong.
I understand this Clause, in effect, to counteract avoidance of Surtax. I dare say that I am right in that, because those are the words used by the Financial Secretary on the Second Reading of the Finance Bill. He said:
Clause 18 counteracts avoidance of Surtax by remedying a defect in the law relating to revocable settlements which has been revealed by a recent decision of the courts."—[OFFICIAL REPORT, 12th May, 1958; Vol. 588, c. 43.]
That is the purpose of the Clause, until we get to subsection (4), which is a let-out for everybody who tried to avoid Surtax but who, as a result of this, is now to be shown to have failed as a result of this Clause. In short, where one has the Surtax dodger, the man who has entered into a settlement to avoid Surtax, it is not sufficient that one puts the matter right, as in the two previous Clauses on dividend stripping. One must apparently give a man three months' notice of what one intends to do, and enable him to alter the settlement so that he shall not be prejudiced by having entered into it.
The reply given a short time ago to the Amendment moved by the hon. and


gallant Member for Cheltenham (Major Hicks Beach) indicated that if six months was shown not to be sufficient the Solicitor-General was prepared to consider increasing it still further. My point is that whereas, on the two previous Clauses, the Committee has refused to give any help to the Amendments put forward from this side, designed to deal with tax avoidance, on this occasion, when we are dealing with Surtax avoidance through settlements, the Government are not only giving ample warning to the dodger to alter the settlements but dealing sympathetically with other Amendments to extend the time further. That is the way the Government apparently are seeking to discharge their duty of protecting the taxpayer and the Revenue.

The Solicitor-General: This is a turgid subject at any time, and a perfectly frightful topic at this hour of the night. I hope hon. Members will forgive me if I detain the Committee for a moment to deal with the matters which have been raised and have been put upon my plate, as it were, by the speech of my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke).
I should like, as anybody would, to deal wth the problem as concisely and with as few words as possible. I must not discuss a new Clause but, as an illustration of the argument of my hon. and learned Friend, we might conveniently look at the terms suggested by my hon. and learned Friend in his proposed Clause, "Amendment of s. 404 of Income Tax Act, 1952." It is very graceful, very brief and by no means verbose, but I am sure he will forgive me if I point out that the trouble with it is that it does not do what the Clause has to do. Perhaps in a moment I might indicate to him why. I am not mocking at all, because I myself would not know, but those who advise me on these matters have pointed out why it does not. A form of words such as my hon. and learned Friend suggests by the insertion of the words "wholly or partially" in Section 404 of the Income Tax Act, 1952—

Mr. Mitchison: On a point of order, Sir Gordon. Are we discussing Clause 18 or a new Clause on the Order Paper which was referred to at the end of the speech of the hon. and learned Member

for Darwen (Mr. Fletcher-Cooke) and which has not been called but appears to be the subject of discussion by the right hon. and learned Gentleman?

The Deputy-Chairman: We are discussing Clause 18, but I understand that the Solicitor-General referred to the new Clause by way of illustration.

The Solicitor-General: I should hate to take up more time than need be by going out of order. I was endeavouring to answer my hon. and learned Friend's question. It was, in terms, "Why not do what you have to do by inserting 'wholly or partially' in Section 404 of the 1952 Act?" I was looking at the words of his Clause as a convenient illustration in order to see what happened if one inserted those words.
The reason why it does not do what one has to do in this context is that it leaves open in the case of the annual payments settlement—the usual kind of seven-year deed is an example—the contention that the settlement contains no power wholly or partially to revoke or otherwise determine the settlement. It leaves open the contention that the mere fact that the amount of the annual payments may be cut down does not amount to a power of partial revocation in this context. It does not deal with the question of the penalty settlement that one has to deal with, which is dealt with in part of Section 404 (1) of the 1952 Act. It leaves open something absolutely essential in this context to deal with the capital settlement, the Saunders type of case—the lawyers will know what I mean. There there was some discussion in the court of appeal at length as to whether in the words of Section 404:
…to revoke or otherwise determine the settlement or any provision thereof…
"provision" meant some benefit conferred by the settlement or a clause in the settlement.
11.15 p.m.
The majority of their Lordships—that is, two of them, Lord Simonds and Lord Reid—thought that the point need not be further pursued, but Lord Cohen came down on the side of a clause in the settlement—and other courts might take that view. If that is so, the form of words which my hon. Friend has in mind leaves the whole problem unsettled. One cannot plunge into what we might call the


clean form of words which he has in mind.
My hon. and learned Friend asked me about other alternatives.
In Clause 18 (1) (a), if one leaves out the first part of the alternative so that it read,
the references to a power to revoke or otherwise determine a settlement or any provision thereof shall be deemed to include references to any power to diminish the amount of any annual payments which the settlor or the wife or husband of the settlor may be liable to make…
and so on, one would deal with the annual payment settlement where the settlor covenanted directly with the beneficiary. But one does not deal with the case where a trustee is interposed. One does not deal with the case, for instance, where there is a power to direct that the beneficiary is only to receive a reduced amount and the consequence of that is that the settlor has not to pay the same amount. For example, a covenant whereby a settlor undertakes to pay to trustees an annuity sufficient to enable them to pay £500 a year to "A" and "B", but where there is a discretionary power to the trustees to reduce the amount payable to "A" and "B" to £5. The result would be to diminish the amount due from the settlor.
It is for this reason that the words are as they are in paragraph (a), and I know that my hon. Friend will realise the importance of paragraph (a) of subsection (2) in relation to the Saunders case—where there is a power to hand out property comprised in a settlement. But paragraph (b) is required also to deal with a case where there is power to divert some of the income from the beneficiary to the settlor. That is a sample. The Clause may not be perfect enough to stop up all the holes, but the kind of case which might be given to illustrate why paragraph (a) is wanted is of a settlement which specifically forbids any passing of the capital involved to the settlor, or the settlor's husband or wife as the case may be. It is not, therefore, covered by subsection (2) of Section 404 of the Income Tax Act, 1952; it is quite outside paragraph (a) of subsection (2) of the Clause. Suppose it is that kind of settlement and includes a provision that the income of the settlement should be paid to "A" and if the trustees so decide that only £100 should be paid to "A"

and the rest to the settlor's wife, we should want some words to catch that one
I was asked by my hon. and learned Friend about the effect of a quite common form of settlement. His suggestion was a settlement whereby the settlor bound himself in every year when his income reached £X to pay so-and-so. Not having thought about it until he spoke, that, I apprehend, is not caught by this provision, but I will reconsider that matter, for much may depend upon the precise form of words used.
There is one other matter with which I must deal, the question of the choice of date in relation to a settlement in respect of which the let-out under subsection (4) is to apply. The hon. Member for Gloucester (Mr. Diamond) invokes splendid interest in what seems to him to be the indulgence of the wicked Tories for the tax avoider in this instance. They are not exactly such, for there are people who, for perfectly innocent reasons of which the hon. Member would approve, create revocable settlements. No doubt the bulk of them have a tax avoidance tinge about them, but the point about this kind of let-out is that a person who has brought about a kind of tax avoidance can purge himself of that altogether, and it seems reasonable to allow him to do that.
We follow precise precedents in this matter—such as they are. If the hon. Member looks at the appropriate Schedule of the Finance Act, 1938, he will find an exactly parallel let-out based in the same way and no doubt on the same principle. He was concerned about the date which might be applicable in the case of what I might call the pre-Budget settlement and not the post-Budget settlement and we followed precedent in that way.
I ask my hon. and learned Friend the Member for Darwen to think why it is that we follow the previous general line in relation to tax avoidance in limiting the let-out to pre-Budget statement and why in the past that has been the general line adopted. I think that on reflection he will agree that it would be preposterous to confine oneself in the context to what was stated in the Chancellor's Budget statement. It is only for humble mortals like myself to listen to such things as Budget statements by Chancellors, but it would be the abomination of desolation to impose upon the Chancellor of the


Exchequer the obligation to recite in his Budget statement every form of device of which he could think and which he intended to stop.
Nor does that happen, because any competent adviser advising somebody making a settlement after the Budget statement would at least in common decency take the trouble to look at the Financial Resolution on which it was based, and the Financial Resolution on which this matter is based in Number 12. I do not want to read it to the Committee at this hour, but if at his leisure my hon. and learned Friend will look at column 80 of HANSARD for 5th April, the date of the Budget statement, he will see that there is a specific reference to Section 404, and, of course, the Clause does nothing which is not authorised by the Financial Resolution.
Nor does the Financial Resolution confine itself to reversing the case of Saunders, because it would be a silly way to block up a hole like Saunders by leaving all kinds of escape vents in other directions which persons as ingenious as my hon. and learned Friend could easily find. Anybody considering what the Chancellor was proposing to do would sensibly look at what the Financial Resolution said, and, of course, the Clause is covered by what is in the Financial Resolution.
It is for that reason that it seems right in this context for us to follow what has always been the general line in this matter and to make the let-out apply to pre-Budget settlements and not to post-Budget settlements. After all, it may be a little unkind to the fellow taxpayer of the settlor to give the settlor and his advisers a free run while the anti-avoidance enactments were being incorporated into law. I hope that on reflection my hon. and learned Friend will think that a satisfactory reason for the course which we have taken.

Mr. Diamond: The right hon. and learned Gentleman referred to the Budget proposals reported in column 80 of HANSARD for Budget day. Do I gather that to mean that one is entitled to have regard to the Budget proposals and to the Motions carried by the Committee?

The Solicitor-General: It is possible that I was misheard. I was referring to the Financial Resolution Number 12, and I was expressing the view that any lawyer

seeking to advise somebody about whether to make a settlement in a certain form at some date between the Budget statement and the publication of the Finance Bill, say, three weeks later, would be slightly unwise not to look at the terms of the Budget Resolution on which that passage of the Chancellor's statement was founded.

Mr. Mitchison: The right hon. and learned Gentleman has answered the debate so fully that it would be almost blasphemous to add any more.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 19.—(TIME LIMITS.)

Motion made, and Question proposed, That the Clause stand part of the Bill.

Mr. Houghton: This is, I think, the shortest Clause in the Bill. Its rubric, which reads "Time limits," would seem to contain an appropriate suggestion. I rise only to ask a couple of questions.
The provisions of the Sixth Schedule to the Bill carry out the very sensible recommendation of the Royal Commission to rationalise the time limits for appeals, claims for relief and elections which, for a basis of assessment, are provided in the Income Tax Act. There is no doubt that it will be a great help to taxpayers, and especially to those who advise them, to have far fewer time limits to carry in their minds than has previously been the case when different time limits have been brought in with different provisions at different times.
On the face of it, one might think that the time limit given for some claims is rather long. For instance, one would not normally expect that it was necessary to provide a six-year limit for a claim for a void relief, yet I read in a professional magazine that practitioners will welcome it, for frequently they only hear that a property has been unoccupied long after the time. The time limit of six years will be a welcome change.
I wish to ask about two things. First of all, the time limits for appeals against assessments for Surtax, which, I presume, are not covered by the Clause because they were dealt with in Statutory Rules and Orders, 1928, No. 610, paragraph 5, which provide a limit of 28 days for appealing against assessments for Surtax.


I presume that steps will be taken to bring appeals against Surtax assessments into line with the new arrangements for Income Tax.
Then, of course, there is the vast field of assessments made under Pay-As-You-Earn which again fall not to be dealt with in the Sixth Schedule because they were covered by paragraph 51 of the Income Tax (Amendment) Regulations, 1950. I hope that the Financial Secretary will be able to assure the Committee that these two important sets of appeals will be provided for by whatever is the appropriate machinery.
I am sure that the Committee will welcome the new provision and that it will be a safeguard against forgetfulness or ignorance of the right to claim or to elect. It is a change which I think the Royal Commission did well to recommend, although it has, perhaps, taken rather long for the Chancellor to find room for it in the Finance Bill.

11.30 p.m.

Mr. Simon: As the hon. Member remarked, the provisions in the Schedule implement the recommendations of the Royal Commission. It effects a rationalisation, a tidying up of the law, which I think has been welcomed very generally, and it operates in every case where there has been an alteration in favour of the taxpayer.
The hon. Member asked about the 28 days time limit covering appeals against Surtax assessment which is contained in the 1928 Regulations at the moment. This will be amended in due course, but the present intention is to wait until the Regulations require amendment in other respects. It did not altogether fit within this particular exercise. The Regulations permit the Special Commissioners to grant further time, and I am able to say that in future they will invariably accept notices of appeal made within 30 days, as I think the hon. Member will bear me out, has been almost invariably the case in the past.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Consideration of postponed Clauses 20 to 34 and of new Clauses further postponed till after consideration of Schedule 6.—[Mr. Heathcoat Amory.]

Sixth Schedule.—(EXTENSION OF TIME LIMITS.)

Mr. Victor Collins: I beg to move, in page 48, line 12, to leave out "thirty" and to insert "forty-two".
I am fully aware that at this time of night the only words hon. and right hon. Members want to hear are "Who goes home?", but I hope the Chancellor will realise that I have not selected this time to move the Amendment and will listen to the argument I wish to put forward on behalf of many thousands of people, a vastly larger number than those we were considering under Clause 18 for quite a considerable time in what the Solicitor-General referred to as a somewhat turgid discussion; indeed, I found it so.
The Chancellor will be aware that for some months prior to the Budget I had been pressing on him the great hardship imposed on many thousands of firms, especially small traders and individuals, because only 21 days were allowed to appeal against tax assessments under Schedule D. He has to some extent conceded the case because in this Bill the period for appeal has been increased to 31 days, but that is not enough. The extra 12 days I am asking for in this Amendment, making a total of six weeks, is the barest minimum required to meet the demands of justice.
It is all very well to talk about rationalisation, and I am aware the periods of 21, 28 or 10 days have now all been tidied up into 30 days, but we are not awarding fines or talking about tax evasion. We are concerned in trying to see that the majority of firms of trading taxpayers are not, as it were, defrauded through too short a time for appeal and compelled subsequently to pay tax which they are not entitled to be asked for. Even if the period is extended to 42 days, that will not give the taxpayer equal rights with the Inland Revenue, for the Inland Revenue has the right to alter assessments at any time in six years, not six weeks. I am not asking for that, but only for the right of the taxpayer to appeal against assessment during a period of six weeks. The Inland Revenue get it on the swings and also on the roundabouts.
This proposal of six weeks in which to appeal would give the taxpayer a close


resemblance to justice and save him and his accountants and, I submit, the staffs of the Inland Revenue a great deal of unnecessary work which at present has to be done. As the Committee is well aware, these assessments are posted in November and December for the fiscal year ended on 5th April of the following year. They are based on income or profit up to the previous year. In the case of a large company, whose financial year ends on 31st December or even as late as 31st March, the audited accounts will usually be available when the assessment is made, but this is not the case with the majority of smaller businesses. The audited accounts are not available when the assessment is made and the Revenue has to think of a number. To protect his interests, the trader must appeal or ask his accountant to appeal, and this alone involves an enormous amount of work all round.
In addition, November and December, when the assessments are posted, are for many small firms the busiest period of the year—the period which will decide whether they will make a profit or not. There is therefore a tendency, because they are very busy, for the assessment notices to be put aside to await consideration when time allows. If they are then overlooked for a few weeks it could be disastrous, because under the Act no excuse is allowed except illness or absence. I know of cases in which assessments have been made and tax has been paid when not a penny was owing, and the greatest difficulty has been experienced in recovering tax overpaid. I know of instances in which it has not been recovered, although there was no question but that it had never been owed.
Another point about posting assessments in November and December—I know that this is unavoidable—is that they are caught up in the Christmas rush and suffer the Christmas postal delay. In any case, the period almost certainly includes the Christmas holiday. Those two factors cut the time down very much, and in many cases there is no time at all. That is why the extension to 30 days is not enough.
Let me quote a case of which the Chancellor is probably himself aware. Last year in the Taunton division notices were not posted until 10th December, which meant that they were caught up

in the Christmas rush. I know of one accountant who, with his staff, had to make visits and telephone calls to 50 farmers and, in the end, had to make 20 blind appeals because he did not know whether the assessments had been received and what they were. This goes on year after year, and it must make a great deal of unnecessary work for everyone. If a notice is sent on 10th December, the 21 days' period means that it expires on 31st. It is caught up in the Christmas postal delay, there is the Christmas holiday, and the time available is inadequate. This goes on year after year.
Since my Amendment was tabled I have been informed that the National Chamber of Trade has for some time been pressing the Chancellor for an extension of the time for appeal under Section 51 (3) for precisely the reasons which I have put forward. I am advised that it asked for precisely the 42 days which this Amendment, if accepted, would provide. A resolution to that effect was unanimously endorsed at the annual conference of the Chamber of Trade last April.
May I quote from one of a number of letters which I have received? It is from a firm of accountants which is secretary to a Home Counties Chamber of Trade. It reads:
My firm has the same trouble and has to chase up shopkeepers at the peak of the Christmas rush. Often it is not until after Christmas that the trader is able to pay much attention to paper work and then he brings to us his assessment notice and finds that the statutory time limit for appeal has expired. In general we find that the local inspectors of taxes agree to accept an appeal that is not more than a fortnight overdue but often ask for an explanation for the cause of the delay. This involves everyone in an unnecessary amount of correspondence. My own personal opinion is that as a matter of equity the taxpayer should have the same time limit to appeal as the Inland Revenue has to revise assessments, i.e. six years. I could quote a number of cases where there has been financial loss because appeals against earlier years of assessment have been disallowed. We did not press the Chancellor for amendment of the law to bring about equity as we felt that this would be too much to expect. We felt that an appeal to the Chancellor on purely practical grounds would be more likely to succeed and would at least obviate some of the inconvenience and unnecessary expense to which both taxpayers and the Inland Revenue is subjected around Christmas and the New Year.
I particularly draw the Chancellor's attention to the statement that the local


inspector of taxes does normally accept appeals which are a fortnight out of time. That is almost precisely what I am asking for in this Amendment. Give another 12 days. That would give the local inspector a chance to refuse out of date appeals with far less fear of the consequences.
I do not know whether it has been overlooked or not, but I would mention to the Chancellor that there is one type of Schedule D assessment where it is absolutely impossible for the taxpayer or the Inland Revenue official to know what the income or profit is. I refer to assessments on excess rents and on furnished lettings. Liability is based on the actual rent for the year of assessment, and when a notice is issued in November it is on income which, in many cases, cannot be ascertained until the following April and it becomes obligatory to appeal in every one of these cases.
I should like to hear how the Chancellor justifies insistence by the Revenue on payment of tax according to the assessment in cases where no appeal is made and the income is found to be less than the assessment. That would seem to me like an official fraud, if the Revenue insist on getting the cheque.
I would submit that on the facts I have put forward on behalf of the great mass of ordinary small traders there can be no valid objection to the Amendment on grounds of equity. The Inland Revenue should not, in my submission, try to get taxes to which it is not justly entitled.
There can be no possible objection on the ground of what is practical. I have been told that to extend the period to 42 days would mean delays to the Inland Revenue and would create greater difficulties. I have pointed out the Revenue already does this in some cases in practice, and I cannot see why this practice should not be made regular. I have been told that if the period for appeal were three months there would still be some people who would be out of date with their appeals. I am quite prepared to accept that, but that is all the more reason for accepting the Amendment and then telling those people they are out of date and bringing them up sharply in that way. I do not doubt, having heard many things in the last few days, that there are many experts at evasion, people

who by delaying until the last moment continuously, people who, perhaps, pay a sum on account and then say they have paid too much, and who by using that kind of trick can delay things. I do not doubt such people can delay things indefinitely and perhaps never get clear with their taxes.
But they are doing that now, doing it all the time, with 21 days limit. The 42 days would not affect the position of semi-crooks like that. If one or two clever tricksters manage to continue to owe hundreds of thousands of pounds to the Revenue, I would suggest that the Revenue should get tough with them but not use that as an excuse for being unfair to hundreds of thousands of smaller traders. I therefore submit again that most of the people affected by these assessments just do not know what their profits are when they receive their notices; neither do their accountants. Therefore there is a spate of blind appeals which cause an enormous amount of work to the Inland Revenue.
If the Amendment is accepted there will not only be a fair chance of appeal but a far more reasonable chance that the figures which are submitted are final and accurate, and thus a saving of time and labour all round.
I hope, in the interests of justice and commonsense, the Chancellor will accept the Amendment.

11.45 p.m.

Mr. Simon: The return of the hon. Member for Shoreditch and Finsbury (Mr. Collins) to our debates marks the departure from what one of my hon. and learned Friends described as some of the "esoteric provisions of the law" and what my right hon. and learned Friend described as our more turgid debates. As before, he has put the matter in a completely human way, and this is a problem which affects the taxpayer at the moment of the assessment on him.
The hon. Member compared the six weeks which he proposes for appeal against assessments with the six years which the Inland Revenue have for reopening an assessment. But there is no relationship between those two things. The taxpayer ought to be able to decide within a comparatively short time whether he wishes to appeal, because he knows what his circumstances are, whereas the Revenue may not become


aware of all the facts about the taxpayer's true income until a matter of years after the time when the assessment is due.
The Royal Commission mentioned this particular fact. They said that no legal system could be expected to deal in the same way with time limits for exercising a right of appeal from a tribunal's decision or an analogous time, and in such cases the time limit would be measured in weeks, not years. They went on to recommend the adoption of a uniform period of 30 days, and in fact the Schedule as drawn in the Finance Bill precisely implements that recommendation.
The hon. Gentleman first puts his argument on the basis that the accounts in many cases are not ready when the assessments are received. I cannot imagine that the difference of a fortnight which is
involved in his Amendment would really do very much to put that right, considering the time of the year at which the assessment notices are received. He says that the inspectors already accept in many cases notices of appeal which may be up to 14 days out of time, but we must remember that is 14 days out of time after 21 days, and the amendment which the Schedule effects adds another nine days to that 21.
The Royal Commission were satisfied, and my right hon. Friend endorses that, on the advice of the Inland Revenue—and, on the hon. Gentleman's own testimony, they do deal reasonably with these matters—30 days ought to be sufficient to give the taxpayer notice of appeal. The hon. Gentleman mentioned the notices arriving in one case on 10th December. I think that in this last year a number of assessments did not arrive until getting on for the middle of December, but every effort will be made this year to issue the great bulk of the notices by the middle of November. In some districts that may be postponed until the end of November, but I think if the bulk of them are issued by late November, so that then one has an appeal period of 30 days, that ought to give the taxpayer ample time to consider his circumstances and the desirability of appealing before the Christmas rush. The hon. Member said that the taxpayer may not always know what his circumstances are, and he mentioned particularly the question of excess rents. There again, adding a fortnight will not help the matter at all.

One important reason why the Amendment is undesirable is that if the assessment notices are postponed until late in November, as is bound to happen in some tax districts, a six weeks' period will carry the time limit for appeal past 1st January, and it is on 1st January that the tax is normally due to be paid. It is very undesirable to have a great many assessments open on that date.
Finally, the hon. Member mentioned that it is only in absence or sickness that the strict periods of the law can be relaxed. I think that his quotations about the inspectors' practice shows that the administration is not in fact so rigid. In fact, there is power in the Appeal Commissioners to extend the time where the taxpayer is prevented from appealing within that period by absence, sickness or any reasonable cause. In view of the fact that, in accordance with the Royal Commission's recommendation, we have extended the period now to 30 days, I cannot advise the Committee to accept the Amendment.

Amendment negatived.

Schedule agreed to.

Mr. Amory: I beg to move, That the Chairman do report Progress and ask leave to sit again.
Though early in our debate we had some slightly acrimonious exchanges, it was not long before the habitual good temper of the Committee was restored. I realise that some of the Clauses which we have been
discussing today are rather abstruse and that it would have been possible to spend a great deal of time on them. We have not made quite as much progress as we had hoped but, in all the circumstances, I think that the progress we have achieved has been satisfactory. The next subject to which we have to apply ourselves is a rather broad and important one—the Profits Tax—and I think that it would be for the convenience of the Committee not to embark upon that subject tonight.

Question put and agreed to.

Committee report Progress; to sit again Tomorrow.

Orders of the Day — ADJOURNMENT.

Resolved, That this House do now adjourn.—[Mr. Bryan.]

Adjourned accordingly at seven minutes to Twelve o'clock.